Amazon has 25,000 bonds outstanding, each with a face value of $1,000. 15,000 of the 30,000 bonds pay a semi-annual coupon of 6% p.a. with 10 years left to maturity and an effective annual yield to maturity of 7%. 10,000 of the 30,000 bonds pay an annual coupon of 10% p.a. with 10 years left to maturity and an effective annual yield to maturity of 9%. The most recent coupon for both types of bonds have just been paid. Amazon’s effective tax rate is 25%. Amazon has 11 million ordinary shares outstanding which are currently trading at $5 per share. Amazon beta is 1.5, the risk-free rate is 6%, and the expected return on the market portfolio is 16%. Using the capital asset pricing model to estimate the cost of equity, what is Amazon’s after-tax weighted average cost of capital?
Amazon has 25,000 bonds outstanding, each with a face value of $1,000. 15,000 of the 30,000 bonds pay a semi-annual coupon of 6% p.a. with 10 years left to maturity and an effective annual yield to maturity of 7%. 10,000 of the 30,000 bonds pay an annual coupon of 10% p.a. with 10 years left to maturity and an effective annual yield to maturity of 9%. The most recent coupon for both types of bonds have just been paid. Amazon’s effective tax rate is 25%. Amazon has 11 million ordinary shares outstanding which are currently trading at $5 per share. Amazon beta is 1.5, the risk-free rate is 6%, and the expected return on the market portfolio is 16%. Using the capital asset pricing model to estimate the cost of equity, what is Amazon’s after-tax weighted average cost of capital?
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
Related questions
Concept explainers
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:
Question
Amazon has 25,000 bonds outstanding, each with a face value of $1,000.
15,000 of the 30,000 bonds pay a semi-annual coupon of 6% p.a. with 10 years left to maturity and an effective annual yield to maturity of 7%.
10,000 of the 30,000 bonds pay an annual coupon of 10% p.a. with 10 years left to maturity and an effective annual yield to maturity of 9%.
The most recent coupon for both types of bonds have just been paid. Amazon’s effective tax rate is 25%.
Amazon has 11 million ordinary shares outstanding which are currently trading at $5 per share.
Amazon beta is 1.5, the risk-free rate is 6%, and the expected return on the market portfolio is 16%.
Using the capital asset pricing model to estimate the cost of equity , what is Amazon’s after-tax weighted average cost of capital?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education