A Company has € 9,500,000 in outstanding debt in bonds. The Company's bonds are all 10-year bonds with coupon rate of 8% and yield of 6.5%. The Company has 1,300,000 shares outstanding. The book value per share is € 12 while the market price is € 17,50 per share. The Company has a beta * 0.96 and faces a tax rate of 22%. The market quotations show that the Company's share price rose 32% last year and analysts expect 22% growth in the next years. The main stock index on this capital market performs 15% yearly and T-Bond rate is 4.5%.

Calculate the cost of common stock equity using the capital asset pricing model (CAPM) and the weighted average cost of capital (WACC) for this Company.

Answer rating: 100% (QA)

Here are the steps to solve this problem 1 Calculate riskfree rate Rf Given as 45 2 Calculate expe... View the full answer