You are a conservative investor considering investing hassy. You note that the equity market risk premium is
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Question:
You are a conservative investor considering investing hassy. You note that the equity market risk premium is 5.8%. Risk-free is 2.5% and tax is 35%. You believe Hassy has a 1.2% size risk premium due to its tiny size. Hassy's data:
• Bonds: Hassy has two bonds as outlined below:
- Bond One: six year maturity, $1,000 face value semi-annual coupon bond with a coupon of 1.73% and a yield to maturity of 4.23%. Hassy has 25,637 of these bonds outstanding.
- Bond Two: is a coupon bond that pays annually and has nine years to maturity. The coupon rate is 2.75%, its yield to maturity is 4.78% and its face value of $1,000. Hassy has 7,864 of these bonds outstanding.
• Equity: Hassy has 4,125,876 common shares outstanding and its stock price is $3.56. Hassy’s beta is 3.1 and its Shareholder’s Equity from the balance sheet is $9.3mm.
• Unlevered Free Cash Flow as per the following table:
a) Calculate Hassy’s weighted average cost of capital. Please show all your work and round to at least 2 decimal points
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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