Treasury securities and the yield on debt with same rating

Assignment Help Financial Management

Reference no: EM13873577

In December 1995 Boise Cascade’s stock had a beta of 0.95. The Treasury bill rate at the time was 5.8% and the Treasury bond rate was 6.4%. The firm had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate tax rate was 36%; the market risk premium is 5.5%.

Assume the term structure of interest gives a 200 bp (basis point – a basis point is 1/100 of a %) spread between Treasury securities and the yield on debt with the same rating as Boise Cascade .Calculate the firm’s WACC

Reference no: EM13873577

Questions Cloud

Fixed cost per unit under the pessimistic case scenario : Scout's Manufacturing Co. is introducing a new product. The company expects to sell 2,340 units, give or take 10%. The expected variable cost per unit is $8.77 and the expected fixed costs are $12,285. The company bases its sensitivity analysis on th..

Earn higher rate of return on your investments : Which of the following conclusions would be true if you earn a higher rate of return on your investments? Select one: The greater the present value would be for any lump sum you would receive in the future. The greater the present value would be for ..

What epidemiology and how is used in the health professions : Identify measures of morbidity and mortality used to study health problems. Interpret common measures of morbidity and mortality, including death, birth, and infection rates.

What is blue ocean thinking : What is blue ocean thinking? Background of the blue ocean strategy

Treasury securities and the yield on debt with same rating : In December 1995 Boise Cascade’s stock had a beta of 0.95. The Treasury bill rate at the time was 5.8% and the Treasury bond rate was 6.4%. Assume the term structure of interest gives a 200 bp (basis point – a basis point is 1/100 of a %) spread betw..

Decreasing the portfolio volatility : Start with asset A which has an expected return of 10% and a volatility of 30%. Suppose that we introduce asset B with an expected return of 10% and a volatility of 30%. The correlation between the two asset returns is 0.9. What is the optimal combin..

In the percent of sales method : In the percent of sales method:

What inflation rate is expected after year : Due to a recession, expected inflation this year is only 2.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.25%. Assume that expectations theory holds and the real risk-free rate is r* = 3.5%...

Maturity risk premiums on treasury securities rise : Suppose the inflation rate is expected to be 6.3% next year, 4.9% the following year, and 2% thereafter. Assume that the real risk-free rate, r*, will remain at 2.3% and that maturity risk premiums on Treasury securities rise from zero on very short-..

User Account

All Pages