Giant Inc. has $350 million of bonds at par value outstanding. The bonds have a coupon...
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Giant Inc. has $350 million of bonds at par value outstanding. The bonds have a coupon rate of 7.5% and a yield to maturity of 6.5%. They currently trade in the market at 110% of par value. The company is publicly traded and has 25 million shares outstanding that sell for $48.75 per share. The stock's beta is 1.10, and the current 20 year treasury yield is 2.5%. The expected equity risk premium (ERP) is 6.0% and the tax rate is 25%. 1) What is the cost of debt that should be used in the calculation of the weighted cost of capital? 2) What is the cost of equity? 3) What are the weightings to be used in the calculation of the weighted cost of capital? 4) What is the weighted cost of capital? 5) If the beta of the company was 1.25 would this indicate the equity of the company is more risky or less risky? Giant Inc. has $350 million of bonds at par value outstanding. The bonds have a coupon rate of 7.5% and a yield to maturity of 6.5%. They currently trade in the market at 110% of par value. The company is publicly traded and has 25 million shares outstanding that sell for $48.75 per share. The stock's beta is 1.10, and the current 20 year treasury yield is 2.5%. The expected equity risk premium (ERP) is 6.0% and the tax rate is 25%. 1) What is the cost of debt that should be used in the calculation of the weighted cost of capital? 2) What is the cost of equity? 3) What are the weightings to be used in the calculation of the weighted cost of capital? 4) What is the weighted cost of capital? 5) If the beta of the company was 1.25 would this indicate the equity of the company is more risky or less risky?
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Giant Inc Capital Cost Analysis 1 Cost of Debt The cost of debt can be calculated using the yield to ... View the full answer
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
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