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Determine the company weighted average cost of capital

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Question - A company has € 6.000.000 in outstanding debt in bonds. The company's bonds are all 10-year bonds with coupon rate of 8% and yield of 10.5%. The company has 1,200,000 shares outstanding. The book value per share is €9 while the market price is €19 per share. The company has a beta of 2.4 and faces a tax rate of 27%. The market quotations show that the company's share price rose 18% last year and analysts expect 28% growth in the next years. The main stock index on this capital market performs 12% yearly and T-Bond rate is 5.5%. Calculate the cost of common stock equity using the capital asset pricing model (CAPM) and the weighted average cost of capital (WACC) for this company.

Required -

1. Determine the company's cost of debt?

2. Determine the company's cost of common equity?

3. Determine the company's weighted average cost of capital?

Reference no: EM133107498

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