Explain how to determine the debt and equity parts

Reference no: EM133615933

Problem

Coolio Inc. has 100,000 bonds outstanding that are selling at 75 per cent of par. Bonds with similar characteristics are yielding 5.5 per cent. The company just issued zero coupon bonds with a par value of €100 million at 40 cents on the euro with a maturity in 10 years.

The company also has 250,000 shares of 5 per cent preference shares and 2.5 million shares of ordinary equity outstanding. The preference shares sell for €48 a share. The ordinary equity has a beta of 1.94 and sells for €82 a share. The government Treasury bill is yielding 1.8 per cent and the return on the market is 12.2 per cent. The corporate tax rate is 28 per cent. What is the firm's weighted average cost of capital? Show all work.

Explain how to determine the debt and equity parts? Is preference shares debt or equity? What does "40 cents on the euro" mean?

Reference no: EM133615933

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