1. Deepon Corporation has 7.8 million shares of common stock outstanding and 155,000 semi-annual bonds outstanding...

 

 

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1. Deepon Corporation has 7.8 million shares of common stock outstanding and 155,000 semi-annual bonds outstanding with a face value of $1,000 and a 7.5% coupon rate. The common stock currently sells for $342 per share and has a beta of 1.18, and the bonds have 13 years to maturity and sell for 98% of face value. The market risk premium is 6.9%, T-bills (risk-free) yield 5%, and the company's tax rate is 40%. a) What is the firm's market value capital structure? b) Estimate the firm's cost of equity, and after tax cost of debt. (c) Estimate the company's total cost of capital. (16 marks) 2. Peebon Limited has a target capital structure of 75% common stock, and the remaining percentage in debt. Its cost of equity is 9%, and the cost of debt is 6%. The relevant tax rate is 29%. What is Peebon's total cost of capital? (6 marks) 1. Deepon Corporation has 7.8 million shares of common stock outstanding and 155,000 semi-annual bonds outstanding with a face value of $1,000 and a 7.5% coupon rate. The common stock currently sells for $342 per share and has a beta of 1.18, and the bonds have 13 years to maturity and sell for 98% of face value. The market risk premium is 6.9%, T-bills (risk-free) yield 5%, and the company's tax rate is 40%. a) What is the firm's market value capital structure? b) Estimate the firm's cost of equity, and after tax cost of debt. (c) Estimate the company's total cost of capital. (16 marks) 2. Peebon Limited has a target capital structure of 75% common stock, and the remaining percentage in debt. Its cost of equity is 9%, and the cost of debt is 6%. The relevant tax rate is 29%. What is Peebon's total cost of capital? (6 marks)