You have information regarding your firms (call it Firm A) common equity: Market value of equity =
Fantastic news! We've Found the answer you've been seeking!
Question:
You have information regarding your firm’s (call it Firm A) common equity:
- Market value of equity = $10M.
- Current market price per share = $20.
Q(a):- How many shares are outstanding?
Suppose you are given additional information regarding the firm’s equity and market returns:
- Standard deviation of equity returns (σA ) = 0.20
- Correlation between your firm’s equity returns and market returns (ρA,M ) = 0.76
- Standard deviation of market returns (σM ) = 0.175
- Market risk premium = 6.25%
- Risk free rate = 2.5%
Q(b):- What is your firm’s equity beta?
Q(c):- What is the cost of equity capital?
Lastly, assume you have the following information regarding your firm’s debt:
- Market value of bonds = $5M.
- Current market price per bond = $785.
- Face value = $1000.
- I.e., the amount of money returned at maturity by each bond.
- Zero-coupon (i.e., the bond only pays out its face value at the maturity date).
- Remaining time to maturity = 4 years.
- Tax rate = 35%.
Q(d):- What is the after-tax cost of debt?
Q(e):- What is the weighted average cost of capital?
Related Book For
Strategic Management Text and Cases
ISBN: 978-1259196553
7th edition
Authors: Gregory Dess, Tom Lumpkin, Alan Eisner, Gerry McNamara
Posted Date: