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Overall cost of debt

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Computation Questions. Please do in excel spreadsheet and show work so I understand.

1. A company's stock has a beta of 0.8. The risk-free rate is 5% and the market risk premium is 6%. The company has 10 million shares outstanding at at current market price of $10 per share. The overall cost of debt is the weighted average implied by the following two outstanding debt issues:

1 Face value: 100 million; Coupon 6%; Sells for 90% of par; matures in 10 years.

2. Face value: 30 million; Coupon 8%; Sells for 88% of par; matures in 15 years. Both bonds make semiannual payments. The tax rate is 35%. What is the company's WACC?

3. A company has a WACC of 12%. The company's cost of equity is 19% and its cost of debt is 7%. The tax rate is 35%. What is the proportion of debt in the firm's capital structure?

4. You just bought a zero-coupon bond, with a $1000 face value for $508.35. The bond matures in 10 years and has a yield-to-maturity (YTM) of 7%. If you hold the bond for an entire year, how much interest income will you have to declare on your tax return?

5. Your company has a debt-equity ratio of 0.8. Its WACC is 11%, and its cost of debt is 5%. The corporate tax rate is 35%. What is (1) your company's cost of equity capital, and (2) unlevered cost of equity capital?

Reference no: EM131559823

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