Epson has one bond outstanding with a yield to maturity of 5% and a coupon rate of 8%. The company has no preferred stock. Epson's beta is 1.5, the risk-free rate is 2.2% and the expected market risk premium is 6%. Epson has a target debt/equity ratio of 0.7 and a marginal tax rate of 34%. 1. What is Epson's (pre-tax) cost of debt? 2. What is Epson's cost of equity? 3. What is Epson's capital structure weight for equity, i.e., the fraction of long-term capital provided by equity? 4. What is Epson's weighted average cost of capital?
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Epson has one bond outstanding with a yield to maturity of 5% and a coupon rate of 8%. The company has no
Epson has a target debt/equity ratio of 0.7 and a marginal tax rate of 34%.
1. What is Epson's (pre-tax) cost of debt?
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