Weighted average cost of capital if their marginal tax rate

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Reference no: EM131875850

You are an outside analyst attempting to estimate the cost of capital for Venice Indus. You don't know the corporations target capital structure. However, the balance sheet shows a total of $55 mil of long term debt with a coupon rate of 8.5%. The yield to maturity is 10.50%(before tax) and the total current market value is $50 mil. The balance sheets also show the total of common stock and retained earnings is $70 mil. The company's stock has a beta of 1.70 and the stock price is $12.50/share. There are 12 million shares of stock outstanding and the current risk free rate is 3.5%.The company recently paid a dividend of $0.75 and they typically pay out about 25% of their earnings in cash dividends. Venice's return on equity is 10% and the expected return on the market 9.5%. What is your estimate of VI's weighted average cost of capital if their marginal tax rate is 39%? (Show work)

Reference no: EM131875850

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