Cyclops Software has 10 million shares trading at $20/share and the only debt it has is...

Cyclops Software has 10 million shares trading at $20/share and the only debt it has is a ten-
year convertible bond with face value of $50 million, a market value of 80 million and a coupon rate of 4%. The unlevered beta for software companies is 1.20 and the bond rating for the
company is Ba3 (with a default spread of 4%). The company paid out 10% of its taxable income as taxes last year but the marginal tax rate is 40%. If the risk free rate is 2% and the equity risk
premium is 6%, estimate the cost of capital for the firm.

Expert Solution

jeff jeffy answered 1 year ago

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