6. If Pelly ASA were an all-equity company, it would have had a beta of 1.1. The company has a target debt-equity ratio of 0.40. The expected return on the market portfolio is 12%, and the risk free rate is 5%. The company has one bond issue outstanding that matures in 20 years and has a 10% coupon rate. The coupon is paid annually. The bond currently sells for NOK 90.00. the face value of the bond is NOK 100. The corporate tax rate is 28%. What is the company's cost of debt before tax? (a) 5.00%. (b) 7.00%. (c) 10.00%. (d) 11.28%. (e) I choose not to answer.
6. If Pelly ASA were an all-equity company, it would have had a beta of 1.1. The company has a target debt-equity ratio of 0.40. The expected return on the market portfolio is 12%, and the risk free rate is 5%. The company has one bond issue outstanding that matures in 20 years and has a 10% coupon rate. The coupon is paid annually. The bond currently sells for NOK 90.00. the face value of the bond is NOK 100. The corporate tax rate is 28%. What is the company's cost of debt before tax? (a) 5.00%. (b) 7.00%. (c) 10.00%. (d) 11.28%. (e) I choose not to answer.
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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Transcribed Image Text:6.
If Pelly ASA were an all-equity company, it would have had a beta of 1.1. The company has a
target debt-equity ratio of 0.40. The expected return on the market portfolio is 12%, and the
risk free rate is 5%. The company has one bond issue outstanding that matures in 20 years and
has a 10% coupon rate. The coupon is paid annually. The bond currently sells for NOK 90.00.
the face value of the bond is NOK 100. The corporate tax rate is 28%.
What is the company’s cost of debt before tax?
(а) 5.00%.
(b) 7.00%.
(c) 10.00%.
(d) 11.28%.
(e) I choose not to answer.
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