R.s. Green has 250,000 shares of common share, the stock\'s beta stock outstandi

Question

R.s. Green has 250,000 shares of common share, the stock's beta stock outstanding at a market price of $28 a share. The stock;s beta is 1.25. the market risk premium is 7% and t-bills are yielding 45. the firm also has 7500 shares of bond outstanding with a face value of 1000 per value. the bonds carry a 7% coupon pay interest semiannually and mature in 7.5 years the bonds are selling at 98% of face value the company's tax rate is 34% what is the Firm's weight average cost of capital?

please show work!!!

Explanation / Answer

Market value of equity= 250000*28 =7000000

Market value of debt =7500*1000 =7500000

Risk free rate (Rf) =(45/955) =4.712%

Cost of Equity =Rf +beta*Market risk premium =4.712%+1.25*7% =13.462%

Cost of debt =7*(1-0.34) = 4.62 %

WACC =(7000000/(7000000+7500000))*13.462% +(7500000/(7000000+7500000))*4.62%

WACC =8.8886%

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