3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021. If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %. What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?
3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021. If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %. What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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3) Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 1.5. It also has $10 million face value of bonds that matures 26 July 2042 and 7 % coupon with annual payments and are priced to yield 14%. Use actual/actual convention method. Settlement date is 8 April 2021.
If the company issues up to $ 2,500,000 of new bonds, the bonds will be priced at par and have a yield of 14 %; if it issues bonds beyond $2,500,000, the expected yield on the entire issuance will be 15 %. Company has known that market value of its shares is traded at the value of $10 a share and the new shares can be sold at the same price. The current risk-free rate is 3 % and the expected market return is 10 %. Company’s tax rate is 30 %.
What is the WACC if Company raises $7.5 million of new capital (both equity and debt) while maintaining the same debt-to-equity ratio?
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