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PELLYKW4A5Problem13 - The cost of debt is the YTM of the...

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Question 13 Chapter 13 Market Value of Financing MV D = 5000($1,000)(1.03) = $5,150,000 MV E =160,000($57) = $9,120,000 And the total market value of the firm is: V = $5,150,000 + 9,120,000 = $14,270,000 Cost of equity using the CAPM. The cost of equity is: R E = .06 + 1.10(.07) = .137=13.7%
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Unformatted text preview: The cost of debt is the YTM of the bonds: P = $1,030 = $35(PVIFA R%,40 ) + $1,000(PVIF R%,40 ) R = 3.36% YTM = 3.36% × 2 = 6.72% After Tax cost of debt: R D = (1 – .35)(.0672) = .0437 or 4.37% WACC: WACC = .0437(4.12/14.27) + .1480(9.12/14.27) = 10.72%...
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