Parallel shift in the corporate debt term structure

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In December 1995 Boise Cascade’s stock had a beta of 0.95.The Treasury bill rate at the time was 5.8% and the Treasury bond rate was 6.4% The firm had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate tax rate was 36%; the market risk premium is 5.5%

Assume Boise Cascade’s debt has duration of 5.0. If Treasury rates rise to 6.3% and 6.9%, respectively and there is a parallel shift in the corporate debt term structure, estimate:

-The change in the market value of Boise’s debt.

-The change in the company’s cost of equity

-The change in the firm’s WACC.

Reference no: EM13873760

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