Q.3 Paradise Resorts Company currently has 1.2 million common shares of stock outstanding and the stock...

 

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Q.3 Paradise Resorts Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 2.2. It also has $10 million face value of bonds that have five years remaining to maturity and 8 percent coupon with semi- annual payments, and are priced to yield 13.65 percent. If Paradise issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65 percent; if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16 percent. Happy has learned that it can issue new common stock at $10 a share. The current risk- free rate of interest is 3 percent and the expected market return is 10 percent. Happyis marginal tax rate is 30 percent. If Happy raises $7.5 million of new capital while maintaining the same debt-to- equity ratio, its weighted average cost of capital is? (4 Marks) Q.3 Paradise Resorts Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 2.2. It also has $10 million face value of bonds that have five years remaining to maturity and 8 percent coupon with semi- annual payments, and are priced to yield 13.65 percent. If Paradise issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65 percent; if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16 percent. Happy has learned that it can issue new common stock at $10 a share. The current risk- free rate of interest is 3 percent and the expected market return is 10 percent. Happyis marginal tax rate is 30 percent. If Happy raises $7.5 million of new capital while maintaining the same debt-to- equity ratio, its weighted average cost of capital is? (4 Marks)

Answer rating: 100% (QA)

Answer Current market value Equity Equity Number of share market price 12 10 12 million Bon... View the full answer