Problemthe american movie company has the following sources

Reference no: EM13381932

Problem

The American Movie Company has the following sources of financing reported on its balance sheet:

Liabilities & Equity	Book Value
Debt (13% coupon bonds, $1000 face value)	$4,000,000
Common stock, 100,000 shares	$6,000,000
Total	$10,000,000

The bonds are currently selling for $900, and have a yield-to-maturity of 15%. The common stock is currently priced at $70 per share, and has an estimated beta of 1.5. The current risk-free rate is 6%, and the expected return on the market portfolio is 16%. The company pays taxes at the rate of 40%.

Compute the firm's weighted average cost of capital. Where calculations are required, please show them in the table below.

Cost of

Estimated weight of

Debt:

Common stock:

WACC =

Reference no: EM13381932

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