The shares of debt and equity in capital structure

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Reference no: EM131354037

(Cost of capital) The company has currently 20 000 shares outstanding. The book value per share is $15. The stock is currently trading at the P/B ratio of 2.0; P/E= 12 and EV/EBITDA=7.5. It is also known that the risk free rate is 4%, the beta of the stock is 2.0 and the market risk premium over risk free rate is equal to 5%.

The company is going to issue 8 000 coupon bonds with the par value of $100 per bond, 4% annual coupon rate. Similar bonds currently trade at 6% yield level . The bonds will mature exactly 5 years from now.

Find

A) Cost of debt and equity

B) The shares of debt and equity in capital structure

C) Find WACC and interpret your result?

Reference no: EM131354037

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