(a) Carter Company issued a 30-year vanilla bond ten years ago at par (1000) raising 20m....

 

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(a) Carter Company issued a 30-year vanilla bond ten years ago at par (£1000) raising £20m. The bond has an annual coupon of 8% and is currently trading at £940. The tax rate on corporate profit is 40%. Calculate the after-tax cost of debt. (b) Find the cost of equity for Carter Company if the rate of return available by purchasing long-term government securities is currently 7% and the average risk premium for shares over the risk-free rate has averaged 6%. The market beta for Carter Company is 1.5. (c) Find the WACC for Carter Company if equity capital has a market value of £40m. (d) The market price of Carter Company's stock is £40, the dividend to be paid at the end of the coming year is $4 per share and is expected to grow at a constant annual rate of 6 percent. Use the Gordon Growth model to find the cost of equity. (a) Carter Company issued a 30-year vanilla bond ten years ago at par (£1000) raising £20m. The bond has an annual coupon of 8% and is currently trading at £940. The tax rate on corporate profit is 40%. Calculate the after-tax cost of debt. (b) Find the cost of equity for Carter Company if the rate of return available by purchasing long-term government securities is currently 7% and the average risk premium for shares over the risk-free rate has averaged 6%. The market beta for Carter Company is 1.5. (c) Find the WACC for Carter Company if equity capital has a market value of £40m. (d) The market price of Carter Company's stock is £40, the dividend to be paid at the end of the coming year is $4 per share and is expected to grow at a constant annual rate of 6 percent. Use the Gordon Growth model to find the cost of equity.