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Bob's firm is a retail chain of specialty hardware stores. The firm has 21,000 shares of...

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Finance

  1. Bob's firm is a retail chain of specialty hardware stores. Thefirm has 21,000 shares of stock outstanding that are currentlyvalued at $68 a share. Bob’s firm stock has a beta of 1.3,expected market return is 10%, risk-free rate 1%. The firmalso has 500 coupon bonds outstanding that have a face value of$1,000, a market price of $1,068, mature in 6 years and have a YTMof 5.648%. The tax rate is 35%.

Compute cost of debt

Compute cost of equity

Compute WACC

Answer & Explanation Solved by verified expert
4.3 Ratings (976 Votes)
Debt Number of bonds outstanding 500 Current Price 1068 Market Value of Debt 500 1068 Market Value of Debt 534000 Annual YTM 5648 Beforetax Cost of Debt 5648    See Answer
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Transcribed Image Text

Bob's firm is a retail chain of specialty hardware stores. Thefirm has 21,000 shares of stock outstanding that are currentlyvalued at $68 a share. Bob’s firm stock has a beta of 1.3,expected market return is 10%, risk-free rate 1%. The firmalso has 500 coupon bonds outstanding that have a face value of$1,000, a market price of $1,068, mature in 6 years and have a YTMof 5.648%. The tax rate is 35%.Compute cost of debtCompute cost of equityCompute WACC

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