Determine the firm cost of long-term debt

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A company currently have semi-annual $1,000 face value bonds outstanding with 20 years left until maturity that pay 6-percent annual coupons. The bonds are currently trading at a discount of 96 percent of the par value, and there are 1,500 bonds outstanding. The company also have 50,000 preferred shares outstanding providing a $2 annual dividend with a $25 per share par value and currently trading at $23.50 per share. The company has a beta of 1.18, and present market conditions are such that the risk-free rate is 3 percent, while the market risk premium is 7 percent. The firm's common shares trade for $30 per share, and there are currently 100,000 shares outstanding. The firm's tax rate is 30 percent.

a) Determine the firm's cost of long-term debt, preferred shares, and common equity financing under the conditions above.

b) Determine the current value of the company using market values.

c) Determine the WACC of the company.

Reference no: EM132499044

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