If Smolinski, Incorporated, were an all-equity company, it would have a beta of .95. The company has a target debt-equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $1,050. The corporate tax rate is 23 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
If Smolinski, Incorporated, were an all-equity company, it would have a beta of .95. The company has a target debt-equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $1,050. The corporate tax rate is 23 percent. a. What is the company's cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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
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Transcribed Image Text:If Smolinski, Incorporated, were an all-equity company, it would have a beta of .95. The
company has a target debt-equity ratio of .50. The expected return on the market
portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has
one bond issue outstanding that matures in 25 years, a par value of $1,000, and a
coupon rate of 6 percent. The bond currently sells for $1,050. The corporate tax rate is
23 percent.
a. What is the company's cost of debt? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the company's cost of equity? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c. What is the company's weighted average cost of capital? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
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