Electric Youth, Inc. (EY) is a publicly-traded firm that is the market share leader in perfume for teenagers. You are charged with estimating the cost of capital for the firm. The following market data on EY’s securities are current: Debt 10,000 seven percent coupon bonds outstanding, 15 years to maturity, selling for 92 percent of par; the bonds have a $1,000 par value each and make annual payments. Common stock 250,000 shares outstanding, selling for $55 per share; the beta is 1.4. Market 7 percent expected market risk premium; 5 percent risk-free rate. EY’s tax rate is 22 percent. To do: estimate EY’s cost of capital. Show all work.
Electric Youth, Inc. (EY) is a publicly-traded firm that is the market share leader in perfume for teenagers. You are charged with estimating the cost of capital for the firm. The following market data on EY’s securities are current: Debt 10,000 seven percent coupon bonds outstanding, 15 years to maturity, selling for 92 percent of par; the bonds have a $1,000 par value each and make annual payments. Common stock 250,000 shares outstanding, selling for $55 per share; the beta is 1.4. Market 7 percent expected market risk premium; 5 percent risk-free rate. EY’s tax rate is 22 percent. To do: estimate EY’s cost of capital. Show all work.
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
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Electric Youth, Inc. (EY) is a publicly-traded firm that is the market share leader in perfume for teenagers. You are charged with estimating the cost of capital for the firm. The following market data on EY’s securities are current: Debt 10,000 seven percent coupon bonds outstanding, 15 years to maturity, selling for 92 percent of par; the bonds have a $1,000 par value each and make annual payments. Common stock 250,000 shares outstanding, selling for $55 per share; the beta is 1.4. Market 7 percent expected market risk premium; 5 percent risk-free rate. EY’s tax rate is 22 percent. To do: estimate EY’s cost of capital. Show all work.
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