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If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.20. The company has a target debt-equity ratio of .75. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.8 percent. The company has one bond issue outstanding that matures in 19 years, a par value of $2,000, and a coupon rate of 6.5 percent. The bond currently sells for $2,080. The corporate tax rate is 24 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.) a. Cost of debt 4.85 % b. Cost of equity c. WACC 11.24 % 8.42 × %

If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.20. The company has a target debt-equity ratio of .75. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.8 percent. The company has one bond issue outstanding that matures in 19 years, a par value of $2,000, and a coupon rate of 6.5 percent. The bond currently sells for $2,080. The corporate tax rate is 24 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.) a. Cost of debt 4.85 % b. Cost of equity c. WACC 11.24 % 8.42 × %

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.20. The company has a target debt-equity ratio of .75. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.8 percent. The company has one bond issue outstanding that matures in 19 years, a par value of $2,000, and a coupon rate of 6.5 percent. The bond currently sells for $2,080. The corporate tax rate is 24 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.) a. Cost of debt 4.85 % b. Cost of equity c. WACC 11.24 % 8.42 × %
Transcribed Image Text:If Smolinski, Incorporated, were an all-equity company, it would have a beta of 1.20. The company has a target debt-equity ratio of .75. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.8 percent. The company has one bond issue outstanding that matures in 19 years, a par value of $2,000, and a coupon rate of 6.5 percent. The bond currently sells for $2,080. The corporate tax rate is 24 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.) a. Cost of debt 4.85 % b. Cost of equity c. WACC 11.24 % 8.42 × %
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