Question: Help! I need step by step instructions please... Also, not handwritten.. sometimes its hard to read :) Thank you in advance! Question 6: B. Guardiola
Help! I need step by step instructions please... Also, not handwritten.. sometimes its hard to read :) Thank you in advance!
Question 6: B. Guardiola Corporation (BGC)s stock is currently selling for $50 per share. The last dividends paid by BGC were $2.00 per share. BGC is expected to grow at an 8 percent constant rate forever. The risk-free rate is 4 percent, the market risk premium is 6.6 percent, and BGCs beta is 1.25. BGC bonds are matured in 25 years with an 8 percent coupon rate. The par value of bonds is $1000, and the interest payments are made annually. The bonds are currently selling for $960 per bond. BGCs target capital structure is 40% debt and 60% common equity. BGCs tax rate is 40%. a) What is the firms before-tax cost of debt, b) what is the firms after-tax cost of debt, c) What is firms cost of common equity using CAPM approach, d) What is firms cost of common equity using discounted cash flow approach, and e) what is firms WACC using CAPM approach.
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