Tom Corp has 5.5 million shares of common stock outstanding. The current share price is $83 and the book value per share is $5. The cost of equity on the common stock is 8%. The Company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 5.5% and sells for 109% of par. The second issue has a face value of $45 million, a coupon rate of 5.8% and sells for 108% of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semi-annual coupon payments. The company has a tax rate of 21%. a. What is the pretax cost of debt? What is the after-tax cost of debt? b. What is the weighted average cost of capital?
Tom Corp has 5.5 million shares of common stock outstanding. The current share price is $83 and the book value per share is $5. The cost of equity on the common stock is 8%. The Company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 5.5% and sells for 109% of par. The second issue has a face value of $45 million, a coupon rate of 5.8% and sells for 108% of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semi-annual coupon payments. The company has a tax rate of 21%. a. What is the pretax cost of debt? What is the after-tax cost of debt? b. What is the weighted average cost of capital?
Tom Corp has 5.5 million shares of common stock outstanding. The current share price is $83 and the book value per share is $5. The cost of equity on the common stock is 8%. The Company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 5.5% and sells for 109% of par. The second issue has a face value of $45 million, a coupon rate of 5.8% and sells for 108% of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semi-annual coupon payments. The company has a tax rate of 21%. a. What is the pretax cost of debt? What is the after-tax cost of debt? b. What is the weighted average cost of capital?
Tom Corp has 5.5 million shares of common stock outstanding. The current share price is $83 and the book value per share is $5. The cost of equity on the common stock is 8%. The Company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 5.5% and sells for 109% of par. The second issue has a face value of $45 million, a coupon rate of 5.8% and sells for 108% of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semi-annual coupon payments. The company has a tax rate of 21%. a. What is the pretax cost of debt? What is the after-tax cost of debt? b. What is the weighted average cost of capital?
Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.
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Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
