Ridley Inc. is a small, publicly traded construction company with 50 million shares outstanding trading at...

Ridley Inc. is a small, publicly traded construction company with 50 million shares outstanding trading at $10 a share. Ridley has:

Unlevered beta of 1.1
One bank loan with interest payments of $5 million a year for 5 years and a principal payment (FV) of $250 million
Rating of Baa, for which the default spread is 2%
Marginal tax rate of 40%

The risk-free rate is 2.5%, and the equity risk premium is 5.5%. What is the current cost of capital for Ridley? (hint: find the MV of debt using the data provided … in order words find the PV of the debt)

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jeff jeffy answered 1 year ago

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