FM Foods is evaluating its cost of capital. Use the following information provided on December 31, 2017, to estimate FM's after-tax cost of equity capital. Yield to maturity on long-term government bonds: 4.4% Yield to maturity on company long-term bonds: 6.3% Coupon rate on company long-term bonds: 7% Historical excess return on common stocks: 6.5% Company equity beta: 1.20 Stock price: $40.00 Number of shares outstanding (millions): 240 Book value of equity (millions): $5,240 Book value of interest-bearing debt (millions): $1,250 Tax rate: 35.0%
FM Foods is evaluating its cost of capital. Use the following information provided on December 31, 2017, to estimate FM's after-tax cost of equity capital. Yield to maturity on long-term government bonds: 4.4% Yield to maturity on company long-term bonds: 6.3% Coupon rate on company long-term bonds: 7% Historical excess return on common stocks: 6.5% Company equity beta: 1.20 Stock price: $40.00 Number of shares outstanding (millions): 240 Book value of equity (millions): $5,240 Book value of interest-bearing debt (millions): $1,250 Tax rate: 35.0%
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
Question
- FM Foods is evaluating its cost of capital. Use the following information provided on December 31, 2017, to estimate FM's after-tax
cost of equity capital.- Yield to maturity on long-term government bonds: 4.4%
- Yield to maturity on company long-term bonds: 6.3%
- Coupon rate on company long-term bonds: 7%
- Historical excess return on common stocks: 6.5%
- Company equity beta: 1.20
- Stock price: $40.00
- Number of shares outstanding (millions): 240
- Book value of equity (millions): $5,240
- Book value of interest-bearing debt (millions): $1,250
- Tax rate: 35.0%
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