What is the firms cost of capital for the junior bond

Reference no: EM131975930

Question: A firm can be worth $100 million (with 20% probability), $200 million (with 60% probability), or $300 million (with 20% probability). the firms projects require an appropriate cost of capital of 8%. The firm has one senior bond outstanding, promising to pay $80 million. It also has one junior bond outstanding, promising to pay $80 million. The senior bond promises an interest rate of 5%. The junior bond promises an interest rate of 25%. What is the firms cost of capital for its junior bond? What is the firms cost of capital for its levered equity?

What is the firms cost of capital for its levered equity?

Reference no: EM131975930

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