Troj Services' CFO is interested in estimating the company's WACC and has collected the following information: • The company has bonds outstanding that mature in 26 years with an annual coupon of 7.5 percent. The bonds have a face value of $1,000 and sell in the market today for $920. YTM is 8.21% • The risk-free rate is 6 percent • The market risk premium is 5 percent. • The stock's beta is 1.2. • The company's tax rate is 40 percent. • The company's target capital structure consists of 70 percent equity and 30 percent debt. • The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital.
Troj Services' CFO is interested in estimating the company's WACC and has collected the following information: • The company has bonds outstanding that mature in 26 years with an annual coupon of 7.5 percent. The bonds have a face value of $1,000 and sell in the market today for $920. YTM is 8.21% • The risk-free rate is 6 percent • The market risk premium is 5 percent. • The stock's beta is 1.2. • The company's tax rate is 40 percent. • The company's target capital structure consists of 70 percent equity and 30 percent debt. • The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital.
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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What is the average return in the market (Rm)?
Transcribed Image Text:Troj Services' CFO is interested in estimating the company's WACC and has collected the
following information:
• The company has bonds outstanding that mature in 26 years with an annual
coupon of 7.5 percent. The bonds have a face value of $1,000 and sell in the
market today for $920. YTM is 8.21%
• The risk-free rate is 6 percent.
• The market risk premium is 5 percent.
• The stock's beta is 1.2.
The company's tax rate is 40 percent.
The company's target capital structure consists of 70 percent equity and 30
percent debt.
• The company uses the CAPM to estimate the cost of equity and does not include
flotation costs as part of its cost of capital.
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