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7. Joe’s Pizza-In-A-Cup recently hired you as a consultant to estimate the company’s WACC. You have...

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Finance

7. Joe’s Pizza-In-A-Cup recently hired you as a consultant toestimate the company’s WACC. You have obtained the followinginformation. (1) The firm's noncallable bonds mature in 10 years,have an 6.00% annual coupon, a par value of $1,000, and a marketprice of $1,100.00. (2) The company’s tax rate is 40%. (3) Therisk-free rate is 4.00%, the market risk premium is 5.00%, and thestock’s beta is 1.20. (4) The target capital structure consists of45% debt and the balance is common equity. The firm uses the CAPMto estimate the cost of equity, and it does not expect to issue anynew common stock. What is its WACC? Do not round your intermediatecalculations.

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4.1 Ratings (641 Votes)
Aftertax Cost of Debt The Aftertax Cost of Debt is the aftertax Yield to maturity of the Bond The Yield to maturity of YTM of the Bond is calculated using financial calculator as follows Normally the YTM is calculated either using EXCEL Functions or by using Financial    See Answer
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7. Joe’s Pizza-In-A-Cup recently hired you as a consultant toestimate the company’s WACC. You have obtained the followinginformation. (1) The firm's noncallable bonds mature in 10 years,have an 6.00% annual coupon, a par value of $1,000, and a marketprice of $1,100.00. (2) The company’s tax rate is 40%. (3) Therisk-free rate is 4.00%, the market risk premium is 5.00%, and thestock’s beta is 1.20. (4) The target capital structure consists of45% debt and the balance is common equity. The firm uses the CAPMto estimate the cost of equity, and it does not expect to issue anynew common stock. What is its WACC? Do not round your intermediatecalculations.

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