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og 24 15 Company X has these debt liabilities: $2MM bond maturing in 10 years, with IRR = 5%. $3MM loan due in 3 years, with
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Answer #1

#24

Given, Value of bond= $12 MM and Value of loan= $3MM

Weight of bond (Wb)= 12/15= 0.8 Cost of bond (Rb)= 5%

Weight of loan (Wl)= 3/15= 0.2 Cost of loan (Rl)= 8%

Tax rate= 25%

Therefore, post tax cost of debt capital= (Wb*Rb + Wl*Rl)*(1-T)

= (0.8*0.05 + 0.2*0.08)*(1-0.25) = 4.2%

#25

Required rate of return rE= 7.40% as follows:

A B С D E F 1 As per CAPM, Re= Rp + B*(Rm-Re) 2 Where Re = Expected return on risky asset, R = Risk free rate of return, B= B

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