Question

In: Finance

XYZ has 9 million shares of stock outstanding. The current share price is $50, and the...

XYZ has 9 million shares of stock outstanding. The current share price is $50, and the

book value per share is $6. The firm also has two bond issues outstanding. The first

bond issue has a face value of $70 million and an 8% annual coupon; it sells for 95% of

par. The second bond has a face value of $60 million and a 7% annual coupon; it sells for

97% of par. The first bond matures in 10 years, whereas the second matures in 5 years.

(a) What are XYZ’s capital structure weights on a book value basis?

(b) What are XYZ’s capital structure weights on a market value basis?

(c) Suppose the company’s stock has a beta of 1.5. The risk-free rate is 5% and the market

risk premium is 8%. What is the company’sWACC if the tax rate is 30%?

Solutions

Expert Solution

a)

b)

c)

jeff jeffy answered 8 months ago
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