BlueStar Ferries has 50,000 shares of common stock outstanding with a par value of 1.00 per share.
Question:
BlueStar Ferries has 50,000 shares of common stock outstanding with a par value of £1.00 per share. The current share price is £4 per share. The firm has outstanding debt with a par value of £0.4 million, which is selling at 75% of par. The risk-free rate of interest is 4% and the required return on the firm’s debt is 7%. The risk premium on the market is 9% and the firm has an equity beta of 1.2. The corporation tax rate is 20%. Assume that debt payments are tax deductible.
What is (i) BlueStar Ferries cost of equity and (ii) BlueStar Ferries WACC?
a
(i) 14.80% and (ii) 9.28%
b
(i) 14.80% and (ii) 8.10%
c
(i) 11.84% and (ii) 9.28%
d
(i) 11.84% and (ii) 8.10%
e
None of the above
Financial Accounting
ISBN: 978-0077862268
2nd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann