Company A has the following: Debt: 50,000 bonds with a coupon rate of 5.7 percent and a current price quote of 106.5; the bonds have 20 years to maturity. 200,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Preferred stock: 125,000 shares of 4 percent preferred stock with a current price of $79, and a par value of $100. Common stock: 2,300,000 shares of common stock; the current price is $65, and the stock beta is 1.20. Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent. a. What is the cost of equity? (0.75) b. What is the cost of debt after tax
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Company A has the following:
Debt: 50,000 bonds with a coupon rate of 5.7 percent and a current price quote of 106.5; the bonds have 20 years to maturity. 200,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity.
Common stock: 2,300,000 shares of common stock; the current price is $65, and the stock beta is 1.20.
Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk-free rate is 4 percent.
a. What is the
b. What is the cost of debt after tax
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