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?

Answer rating: 100% (QA)

a Shares outstanding Market capitalization Market price per share ... View the full answer