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Estimate ricon component cost of debt

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Reference no: EM132739449

Ricon Raquets is considering taking on additional debt to fuel its growth. But before that decision is made, the chief financial officer wants the latest estimate of the company's cost of capital and asks you to calculate it. You know the following information about Ricon's securities and the market:

Bonds                               Common Stock
3000 bonds outstanding 200,000 shares outstanding
$1000 par value Expected dividend in 2020 = $3.24
8.5% coupon rate Market price = $36
7 years to maturity
Market price = $1047

Ricon's marginal tax rate = 30% risk-free rate = 4%
Ricon's expected growth rate = 3% average market return = 9%
Ricon's beta = 1.4

Problem a. Estimate Ricon's component cost of debt.

Problem b. Estimate Ricon's component cost of equity using as many methods as possible. Which estimate you will use?

Problem c. Estimate Ricon's weighted average cost of capital.

Reference no: EM132739449

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