Firm cost of common equity using capm approach

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Reference no: EM131570187

Cagliari Corporation (CC)’s stock currently is selling for $50 per share. Last dividends paid by CC were $2.00 per share. CC is expected to grow at an 8 percent constant rate forever. The risk-free rate is 4 percent, Market risk premium is 6.6 percent, and CC’s beta is 1.25. CC bonds are matured in 25 years with 8 percent coupon rate. The par value of bonds is $1000 and the interest payments are made annually. The bonds are currently selling for $960 per bond. CC’s target capital structure is 40% debt and 60% common equity. CC’s tax rate is 40% a ) What is the firm’s before-tax cost of debt, b) what is the firm’s after tax cost of debt, c) What is firm’s cost of common equity using CAPM approach, d) What is firm’s cost of common equity using discounted cash flow approach, and e) what is firm’s WACC using CAPM approach.

Reference no: EM131570187

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