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a. Calculate WACC: A company has 900,000 shares with a trading price of $20/share. The...

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Finance

a. Calculate WACC: A company has 900,000 shares with a trading price of $20/share. The company completed 10 for 6 split in its shares. The company had debt of 300,000 bonds outstanding with market value of $60. The bonds have 10 years to maturity, $90 par value and 6% coupon rate that pays quarterly. The company's equity beta is 2.3 and risk free rate is 1.2% and market expected return is 7%. Tax rate is 30%.

b. A company has an equity beta of 2.00, cost of debt of 7%, d/e ratio of 0.35, and the tax rate of 35%. Risk Free rate 1.25% and Market premium 8%. The details about its competitors are as under:

Name

Equity Beta

Kd

D/E

Tax

Competitor 1

1.5

7.50%

0.4

35%

Competitor 2

2.5

8.00%

0.3

40%

Calculate the cost of capital of the company using Pure Play Approach.

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Finance