HW_Wk 7_

HW_Wk 7_ - 7% Pretax cost of debt? Aftertax cost of debt?...

This preview shows pages 1–2. Sign up to view the full content.

Chapter 14 -1 Chapter 14-2 Cost of Equity? Cost of Equity? Using Growth Model Approach Using SML Approach Dividend   \$2.40  Risk free 5.30% Growth  5.50% Beta 1.05 Price  \$52.00  Market Risk 12% D1 = D0 * (1+g) Re = Rf + Be * (Rm - Rf) 2.4*(1+0.055) Re = 0.053 + 1.05(0.12-0.053) D1    \$2.53  Re  12.34% Re = D1 / (Price + Growth) Re = (25.32/52+0.055) Re   4.86%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Chapter 14-6 Cost of Debt? Maturity  15 yrs Quoted 107% of face value Embedded Cost
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 7% Pretax cost of debt? Aftertax cost of debt? Premium Rate (Face value * quoted percentage) 1000*0.07 70 Cost of Debt = Premium Rate * (1- (1/1+r)^t)/r+(fv/(1+r)^t) Cost of Debt = 70 * ((1-1/(1.0626)^15)0.07+1000/(1.07)^15) Cost of Debt Determined by trial and error Cost of Debt (before tax) 6.26% Cost of Debt (after-tax) Cost of Debt (pre-tax) * (1 -tax rate) 0.0626 * (1-0.35) 4.07%...
View Full Document

This note was uploaded on 05/24/2011 for the course FINANCE 101 taught by Professor Smith during the Spring '11 term at Harvard.

Page1 / 2

HW_Wk 7_ - 7% Pretax cost of debt? Aftertax cost of debt?...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online