Use the following information to answer the questions. Betal Expected retum S&P Index 1.0 6.0% Risk-free...

 

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Use the following information to answer the questions. Betal Expected retum S&P Index 1.0 6.0% Risk-free security 0.0 2.0% Firm A 2.0 ()% 1) The weight of the equity (E/V) is 0.7 for Firm A while the weight of the debt is 0.3. i) Figure out the cost of equity for Firm A using CAPM. E(R) RE=R+BE(RM)-R]=2+2*[6-2]=10% ii) Figure out the cost of debt if the bond price for Firm A is $1,079.85 for the 5-year bond with a par value of $1,000 and a coupon rate of 10% paid annually. The yield to maturity is 8%. So the cost of debt is 8%. iii) Figure out the weighted average cost of capital (WACC) of Firm A. The tax rate is 50%. WACC (E/V) RE+ (D/V) RD(1-T)=0.7*10+0.3*8 (1- 0.5)=8.2% Use the following information to answer the questions. Betal Expected retum S&P Index 1.0 6.0% Risk-free security 0.0 2.0% Firm A 2.0 ()% 1) The weight of the equity (E/V) is 0.7 for Firm A while the weight of the debt is 0.3. i) Figure out the cost of equity for Firm A using CAPM. E(R) RE=R+BE(RM)-R]=2+2*[6-2]=10% ii) Figure out the cost of debt if the bond price for Firm A is $1,079.85 for the 5-year bond with a par value of $1,000 and a coupon rate of 10% paid annually. The yield to maturity is 8%. So the cost of debt is 8%. iii) Figure out the weighted average cost of capital (WACC) of Firm A. The tax rate is 50%. WACC (E/V) RE+ (D/V) RD(1-T)=0.7*10+0.3*8 (1- 0.5)=8.2%