What is the company pre-tax cost of debt

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FunEd is considering adding a new educational toy to its product mix and needs to estimate a discount rate for project analysis. The financial manager of FunEd is evaluating the following information. The book value of FunEd's debt is $150 million and the book value of equity is $200 million. Debt matures in 10 years and pays a 6% coupon semi-annually. It currently trades at $1163.51 per bond. The face value of the bond is $1,000. The par value of common stock is $1, and its current price is $17 per share. The common stock of FunEd has a beta of 0.80. The risk-free rate is 2.4%, and the expected market return is 9%. The company pays taxes at 40% rate.

Problem a) What is the company's pre-tax cost of debt?

Problem b) What is the company's after-tax cost of debt?

Problem c) What is the company's cost of equity?

Problem d)
What is the company's weighted average cost of capital (WACC)?

Problem e) If the new project has the same risk as the existing company, what discount rate should the company use in project's NPV analysis?

Reference no: EM132864807

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