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A firm has a capital structure containing 60 percent debt and 40 percent common stock equity. Its outstanding bonds offer investors a 6.5 percent yield to maturity. The risk-free rate currently equals 5 percent, and the expected risk premium on the market portfolio equals 6 percent. The firm’s common stock beta is 1.20.
a. What is the firm’s required return on equity?
b. Ignoring taxes, use your finding in part a to calculate the firm’s WACC.
c. Assuming a 40 percent marginal tax rate, recalculate the firm’s WACC found in part b.
d. Compare and contrast the values for the firm’s WACC found in parts b and c.
When a firm issues securities to the public for the very first time, these are generally under-priced. Explain why.
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please answer the following questions. please refer to some of the following individual companies for examples ge
ABC, Inc. issues a split-coupon $1,000 bond that matures in seven years. Interest payments are $80 a year (8%) and start after three years have elapsed. The bond initially sells for a discount price of $794. You are in the 30 percent income tax brack..
Fee Founders has perpetual preferred stock outstanding that sells for $48.00 a share and pays a dividend of $4.00 at the end of each year. What is the required rate of return?
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