Firm that is debt-using with negative leverage

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1. Given the following information for Kose, Inc, find the WACC. Assume the company’s tax rate is 35%. Debt: 10,000 9% coupon bonds outstanding, $1,000 par value, 25 years to maturity, currently selling for 100% of par, and the bonds make annual payments. Common stock: 200,000 shares outstanding, selling for $60 per share; the beta is 1.15. Market: 7% market risk premium and 3% risk-free rate.

2. Is the following statement accurate? Please provide a numerical reasoning to support your claim. A firm that is debt-using with a negative leverage gain will always have a return on equity that is negative.

Reference no: EM132049801

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