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Category > Psychology Posted 19 Apr 2017 My Price 4.00

cost of capital for ABC corp.

You are ealeulating the cost of capital for ABC corp. The firm’e equity has aboolr value of $600
million and a market value of $1 billion. The firm’s debt consists of operating leases with a debt
value of $500 million and two bonds. The first band is a weight 30-year bond with book value equal
to $200 million and market value equal to $125 million. The secondbond is a zero-coupon
convertible bond with 10~years to maturity, a face value of $500 million, and a market value of $400
million. The firm has a debt rating ofBBB+ and has a marginal tax rate of 35%. You aasmne a
market risk premium of4.5% and estimate the Beta ofthe firm to be 1-8- Based on the 10-year Treasury Bond yield, you aaemne a risk-flee rate of5.0%.
Using flee default spreads described on the last page of the exam, calculate the east ofdeht for
this firm.

Answers

SuperTutor
(15)
Status NEW Posted 19 Apr 2017 08:04 AM My Price 4.00

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