You are trying to estimate the cost of capital for Miami Corp and had collected

Question

You are trying to estimate the cost of capital for Miami Corp and had

collected the following information:Ø The firm has debt with a book value of 20 million, trading at 120% of

par bondØ The bonds have a yield to maturity of 7%.Ø There are 2 million shares trading at $19 per share.Ø The beta for the firm is 1.133Ø The ten-year T-bond rate is 5.2%Ø The market risk premium is 6%Ø Tax rate is 35%

(a) Estimate the market value of the debt

(b) Estimate the market value of Equity

(c) Estimate the cost of equity for the firm

(d) Estimate the cost of capital for the firm

Explanation / Answer

You are trying to estimate the cost of capital for Miami Corp and had collected

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