a. Calculate WACC: A company has 900,000 shares with a trading price of $20/share. The...
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a. Calculate WACC: A company has 900,000 shares with a trading price of $20/share. The company completed 10 for 6 split in its shares. The company had debt of 300,000 bonds outstanding with market value of $60. The bonds have 10 years to maturity, $90 par value and 6% coupon rate that pays quarterly. The company's equity beta is 2.3 and risk free rate is 1.2% and market expected return is 7%. Tax rate is 30%.
b. A company has an equity beta of 2.00, cost of debt of 7%, d/e ratio of 0.35, and the tax rate of 35%. Risk Free rate 1.25% and Market premium 8%. The details about its competitors are as under:
Name
Equity Beta
Kd
D/E
Tax
Competitor 1
1.5
7.50%
0.4
35%
Competitor 2
2.5
8.00%
0.3
40%
Calculate the cost of capital of the company using Pure Play Approach.
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