A firm has 20 $1,000 face value bonds outstanding. The bonds pay annual coupons and have a coupon rate of 5%. The bonds are currently trading at a price of 1,015 and have 5 years until maturity. The firm also has 2,600 shares of common stock outstanding that trade for $17 per share. The market risk premium is 9%, the risk-free rate is 2.25% and the firm’s beta is 1.6. The corporate tax rate is 21%. What is the firm’s weighted average cost of capital?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
- A firm has 20 $1,000 face
value bonds outstanding. The bonds pay annual coupons and have a coupon rate of 5%. The bonds are currently trading at a price of 1,015 and have 5 years until maturity. The firm also has 2,600 shares of common stock outstanding that trade for $17 per share. The market risk premium is 9%, the risk-free rate is 2.25% and the firm’s beta is 1.6. The corporate tax rate is 21%. What is the firm’s weighted average cost of capital?
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 1 images
