XYZ company has a beta of 1.64, the risk free rate is 2.1%. The market risk rate is 7%. The company has 70 million dollars in outstanding bonds with a maturity date 4 and ½ years from now. The bonds are selling at 97% of par with a 25.00 semi-annual coupon. The company has a total value of 195 million dollars. The y have 500,000 shares of preferred stock at 25.00 per share and a dividend of 1.75. The tax rate is 21%.
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Calculate the cost of debt: The bonds are selling at 97% of par, so the market value of the bonds is 0.97 * $70,000,000 = $67,900,000. The semi-annual coupon payment is $25.00, so the annual coupon payment is $25.00 * 2 = $50.00. The yield to maturity can be Show more…
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