A firm's stock has a market capitalization of 385 million and an equity beta of 0.6....

 

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A firm's stock has a market capitalization of 385 million and an equity beta of 0.6. Bonds issued by the firm have a yield rate of 6.4%. Bonds with a similar debt rating have a default rate of 4.3% and a loss rate of 40%. The total market value of the firm's bonds is 315 million. The risk free rate is 3.4% and the market risk premium is 7.1%. Suppose that the CAPM assumptions hold. Calculate the firm's asset cost of capital. A firm's stock has a market capitalization of 385 million and an equity beta of 0.6. Bonds issued by the firm have a yield rate of 6.4%. Bonds with a similar debt rating have a default rate of 4.3% and a loss rate of 40%. The total market value of the firm's bonds is 315 million. The risk free rate is 3.4% and the market risk premium is 7.1%. Suppose that the CAPM assumptions hold. Calculate the firm's asset cost of capital.

Answer rating: 100% (QA)

To calculate the firms asset cost of capital WACC we need to find the cost of equity and the ... View the full answer