What is the current required rate of return on the equity of FINA corp? FINA issued 30 year bond 5 years ago. The current market value of debt is 50 million. The face value of the bond is 44.5 million. The coupon rate is 6%. The bond pays coupon semiannually. What is the current cost of debt?
What is the current required rate of return on the equity of FINA corp? FINA issued 30 year bond 5 years ago. The current market value of debt is 50 million. The face value of the bond is 44.5 million. The coupon rate is 6%. The bond pays coupon semiannually. What is the current cost of debt?
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 current required rate of
FINA issued 30 year bond 5 years ago. The current market value of debt is 50 million. The face
Transcribed Image Text:FINA Corp. is considering a new project, which is to enter a new industry of kitchen appliances. FINA Corp's beta without the
new project is 1.2. The market risk premium is 7%. The risk-free rate is 3%. The total shares outstanding of FINA is 20 million.
The stock price now is $5 per share. The tax rate is 35%. The following three firms are in the new industry that FlINA wants to
enter. Firm A is a competitor of FINA in auto parts. Firm A also has a division in kitchen appliances. Firm B is producing kitchen
appliances and all kinds of furniture. Firm C is in the kitchen appliances business only. The Beta of firms A, B, and C are 0.9, 1.1,
1.5, respectively.
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