What is the pre-tax cost of debt and after-tax cost of debt

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Reference no: EM131176362

XYZ corp. currently has 50 million shares of common stock outstanding. Their current market price is $80 per share and have a beta of 1.15. XYZ has $1 billion of bonds outstanding, each with the market value of $1100. It is known that the yield to maturity of the bond is 7.85%. XYZ also has 100 million shares of preferred stock outstanding which pay a dividend of $3 annually. The preferred shares are currently trading at $27 a share. The expected return on the S&P 500 is 14% and TBills are yielding 5%. The corporate tax rate is 40%.

•What is the cost of common stock, rs?

•What is the pre-tax cost of debt, rd?

•What is the after-tax cost of debt, rdT?

•What is the cost of preferred equity, rs?

•Now what are the capital structure weights?

•Finally what is the WACC?

Reference no: EM131176362

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