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You are given the following information about a company: There are 1000 shares of stock outstanding...

You are given the following information about a company: There are 1000 shares of stock outstanding and the price is $7 per share There are 5 bonds outstanding. Each has a face value of $1000, has 5 years to maturity, and pays a 6% coupon semi-annually The yield to maturity on the bond is 5%. The corporate tax rate is 30% The Beta on the stock is 1.1, the risk-free rate is 2%, and the return on the market is 8%.

a. What is the percentage debt and percentage equity for the firm? Use market values.

b. What is the weighted average cost of capital (WACC) for the firm?

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Answer #1

E25 A x V fix C =+D25/$D$31 B D E WACC (Cost %*Weights) Cost % Market value Weight 57.29% Cost of equity 4.93% 8.60% $ =2%+1.

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