Here is a book balance sheet for Duane S. Burg Associates. Figures are in millions. Assets...
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Here is a book balance sheet for Duane S. Burg Associates. Figures are in millions. Assets Liabilities and Shareholders' Equity Assets (book $75 Debt $25 value) Equity 50 $75 $75 Unfortunately, the company has fallen on hard times. The 6 million shares are trading for only $4 apiece, and the market value of its debt securities is 20 percent below the face (book) value. Because of the company's large cumulative losses, it will pay no taxes on future income. Suppose shareholders now demand a 20 percent expected rate of return. The bonds are now yielding 14 percent. What is the weighted-average cost of capital? Here is a book balance sheet for Duane S. Burg Associates. Figures are in millions. Assets Liabilities and Shareholders' Equity Assets (book $75 Debt $25 value) Equity 50 $75 $75 Unfortunately, the company has fallen on hard times. The 6 million shares are trading for only $4 apiece, and the market value of its debt securities is 20 percent below the face (book) value. Because of the company's large cumulative losses, it will pay no taxes on future income. Suppose shareholders now demand a 20 percent expected rate of return. The bonds are now yielding 14 percent. What is the weighted-average cost of capital?
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