The company you work for wants you to estimate the company's WACC; but before you do...

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Finance

The company you work for wants you to estimate the company'sWACC; but before you do so, you need to estimate the cost of debtand equity. You have obtained the following information (1) thefirms non-callable bonds mature in 20 years, have an 8.00% annualcoupon, a par value of $1,000 and a market price of $1,225.00. (2)The company's tax rate is 40%. (3) The risk-free rate is 4.50%, themarket risk premium is 5.50%, and the stocks beta is 1.20. (4) Thetarget capital structure consists of 35% debt and the balancecommon equity. The firm uses the CAPM to estimate the cost ofequity, and it does not expect to issue any new common stock.Calculate the company's component cost of debt. Please includeformulas and do not use excel.

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Information providedRisk free arte 450Market risk premium 550Beta 120Par value future value 1000Current price present value 1225Time 20 yearsCoupon rate See Answer

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The company you work for wants you to estimate the company'sWACC; but before you do so, you need to estimate the cost of debtand equity. You have obtained the following information (1) thefirms non-callable bonds mature in 20 years, have an 8.00% annualcoupon, a par value of $1,000 and a market price of $1,225.00. (2)The company's tax rate is 40%. (3) The risk-free rate is 4.50%, themarket risk premium is 5.50%, and the stocks beta is 1.20. (4) Thetarget capital structure consists of 35% debt and the balancecommon equity. The firm uses the CAPM to estimate the cost ofequity, and it does not expect to issue any new common stock.Calculate the company's component cost of debt. Please includeformulas and do not use excel.