What is the firm current weighted average cost of capital

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Terck, a leading pharmaceutical company, currently has a balance sheet that is as follows:

Long-term bonds $1.000

Fixed assets $1,700

Equity $1.000

Current assets $300

The firm’s income statement looks as follows:

Revenues $1,000

Cost of Goods Sold (COGS) $400

Depreciation $100

EBIT $500

Long-term interest expense $100

EBT $400

Taxes $200

Net income $200

The firm’s bonds are all 20-year bonds with a coupon rate of 10% that are selling at 90% of face value (the yield to maturity on these bonds is 11%). The stocks are selling at a P/E ratio of 9 and have a beta of 1.25. The riskfree rate is 6%.

What is the firm’s current weighted average cost of capital?

Reference no: EM131536390

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