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A firm has 40,000 shares whose current price is $80.75. Those stockholders expect a return of...

A firm has 40,000 shares whose current price is $80.75. Those stockholders expect a return of 15%. The firm has a 2-year loan of $900,000 at 6.4%. It has issues 12,500 bonds with a face value of 1000, 15 years left to maturity, semiannual compounding, a coupon interest rate of 6%, and a current price of $1090. Using market values for debt and equity, what is the firm's cost of capital:

a) before taxes?

b) After taxes with a rate of 40%?

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Answer #1

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