The current risk free rate is 6% and the expected return

Reference no: EM13243719

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The company has 50,000 shares of stock outstanding.The current selling price is $15.Based on historical returns, you believe the Beta for this stock should be about 1.5.The current risk free rate is 6% and the expected return on the market is 12%.
The company has also issued 400 bonds that are selling for 125% of par.The bonds have 24 years remaining to maturity and carry a coupon rate of 8%.
Their marginal tax rate is 40%.

1. Compute the before-tax cost of debt for EPB (remember you will need to compute the yield to maturity to find the before-tax cost of debt)

2. Compute the after-tax cost of debt for EPB

3. Compute the weights you should use for equity and debt

4. Compute the weighted average cost of capital for EPB

Reference no: EM13243719

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