The Prichard Company has financial leverage. If it had no debt, its equity Beta would have...

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The Prichard Company has financial leverage. If it had no debt, its equity Beta would have been 1.05. The company's target debt-equity ratio equals 40 and it would like to keep it at this level when expanding its business in the future. Here is some information on the market: the expected return on the market portfolio equals 10 percent, and T-bills offer a 3.8 percent annual return. The Prichard Company has debt with 22 years to maturity, $1,000 par value, and a 6.7 percent coupon rate, with semiannual coupon payments. Today these bonds can be bought and sold for $1,085 each. The company face a corporate income tax rate of 25 percent. a.Calculate the Prichard Company cost of debt. b.Calculate the Prichard Company's cost of equity. c.Finally, calculate the Prichard Company's weighted average cost of capital (or WACC). a. Cost of debt = ? % b. Cost of equity = ? % c. WACC = ? % The Prichard Company has financial leverage. If it had no debt, its equity Beta would have been 1.05. The company's target debt-equity ratio equals 40 and it would like to keep it at this level when expanding its business in the future. Here is some information on the market: the expected return on the market portfolio equals 10 percent, and T-bills offer a 3.8 percent annual return. The Prichard Company has debt with 22 years to maturity, $1,000 par value, and a 6.7 percent coupon rate, with semiannual coupon payments. Today these bonds can be bought and sold for $1,085 each. The company face a corporate income tax rate of 25 percent. a.Calculate the Prichard Company cost of debt. b.Calculate the Prichard Company's cost of equity. c.Finally, calculate the Prichard Company's weighted average cost of capital (or WACC). a. Cost of debt = ? % b. Cost of equity = ? % c. WACC = ? %

Answer rating: 100% (QA)

a The cost of debt can be calculated using the formula Cost of Debt Coupon Rate 1 Tax Rate Given the ... View the full answer