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What are likely effects of a policy in which a company fails

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Reference no: EM132566707

Suppose the Tysseland Company has this book value balance sheet:

  • The current liabilities consists entirely of notes payable to the bank, and the interest rate on the debt is 10 percent, the same as the rate of new bank loans.
  • The long-term debt consists of 30,000 bonds, each of which has a par value of $1,000, carries an annual coupon interest rate of 6 percent, and matures in 20 years. The doing interest rate on new long-term debt is 10 percent, which is also the present yeild to maturity on the bonds.
  • The common stock sells for $60 per share.
  • The firm's beta is 1.6, the risk free rate is 9 percent and the expected return on the market is 13 percent.

Required:

Question a) Compute the firm's market value capital structure.

Question b) What is the firm's Weighted Average cost of Capital (WACC).

Question c) What are the likely effects of a policy in which a company fails to adjust for differences in risk when estimating the cost of capital for their various projects?

Reference no: EM132566707

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