Answer : 10.73%
Explanation : Using CAPM
Expected return = risk free rate + beta × ( market return - risk free rate)
= 2.25% + 1.31 × (8.65% - 2.25%)
= 2.25% + 1.31 × 6.40%
= 2.25% + 8.38%
= 10.63%
Closest to this value is 10.73%, therefore 10.73% is the answer.
If this is not the answer , then the option choices are wrong.
Railsplitters, Inc. has the following information for its capital structure: Instrument: Amount Issued Current Price...
Railsplitters, Inc. has the following information for its capital structure: Instrument: Amount Issued Current Price YTM Bond A $500 Million 100.82 4.36% Bond B $350 Million 101.36 4.49% Common Stock 42.5 Million Shares $28.21 per share E(R) Market = 8.65% B = 1.27 Expected Dividend = $1.95 Rf = 2.10% Growth Rate = 2.75% Given this information, what is the total market value of the firm? Answer in millions. $1,835 0 $2,176 $2.058 $1,937
Railsplitters, Inc. has the following information for its capital structure: Instrument: Amount Issued Current Price YIM Bond A $500 Million 100.82 4.36% Bond B $350 Million 101.36 4.49% Common Stock 42.5 Million Shares $28.21 per share E(R) Market = 8.65% B = 1.27 Expected Dividend = $1.95 Rf = 2.10% Growth Rate = 2.75% Given this information, if the tax rate of the firm is 30%, what is the after-tax cost of debt? 4.41% 04.1296 3.76% 3.09%