Surgico a manufacturer of consumer plastic products is

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Reference no: EM13380667

Surgico, a manufacturer of consumer plastic products, is evaluating its capital structure. The balance sheet of the company is as follows (in millions):

1156_What is the firms cost of equity.png

In addition, you are provided the following information:

- The debt is in the form of long-term bonds, with a coupon rate of 10%. The bonds are currently rated AA and are selling at a yield of 12%. The market value of the bonds is 80% of the face value.

- The firm currently has 50 million shares outstanding, and the current market price is $80 per share.

- The stock currently has a beta of 1.2. The Treasury bond rate is 8% and the market risk premium is 5.5%. The tax rate for this firm is 40%

a. What is the debt-equity ratio for the firm in book value terms? In market value terms?

b. What is the firm's cost of equity?

c. What is the firm's after-tax cost of capital?

Reference no: EM13380667

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