Northwest Corporation is estimating its WACC. Its target capital structure is 35 percent debt and 65 percent common equity. Its bonds have a 10 percent coupon, paid semiannually, and a current maturity of 20 years. Bonds also have a current market value of $1,000 and a par value of $1,000. Northwest's beta is 1.47, the risk- free rate is 5.2 percent, and the market risk premium is 7 percent. The firm's marginal tax rate is 40 percent. What is Northwest's before-tax cost of debt? 15. % 16.) What is the firm's cost of common stock (RE) (rs) using the CAPM approach? % 17. (What is Northwest's WACC? %
Northwest Corporation is estimating its WACC. Its target capital structure is 35 percent debt and 65 percent common equity. Its bonds have a 10 percent coupon, paid semiannually, and a current maturity of 20 years. Bonds also have a current market value of $1,000 and a par value of $1,000. Northwest's beta is 1.47, the risk- free rate is 5.2 percent, and the market risk premium is 7 percent. The firm's marginal tax rate is 40 percent. What is Northwest's before-tax cost of debt? 15. % 16.) What is the firm's cost of common stock (RE) (rs) using the CAPM approach? % 17. (What is Northwest's WACC? %
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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Transcribed Image Text:Northwest Corporation is estimating its WACC. Its target capital structure is 35
percent debt and 65 percent common equity. Its bonds have a 10 percent coupon,
paid semiannually, and a current maturity of 20 years. Bonds also have a current
market value of $1,000 and a par value of $1,000. Northwest's beta is 1.47, the risk-
free rate is 5.2 percent, and the market risk premium is 7 percent. The firm's
marginal tax rate is 40 percent.
What is Northwest's before-tax cost of debt?
15.
%
164) What is the firm's cost of common stock (RE) (rs) using the CAPM
approach?
%
17. (What is Northwest's WACC?
%
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