# Consider the following scenario: suppose a company has 100 million common shares outstanding, and each

4 answers

###### Question:

Consider the following scenario: suppose a company has 100 million common shares outstanding, and each share sells for $20. we have estimated that the shares have a beta of 1.25, the risk-free rate is 2%, and the expected market return is 6%. the marginal tax rate for this company is 35%. the company also has $1 billion of bonds outstanding and the yield to maturity on these bonds is 4%. the company has a target capital structure of 60% equity and 40% debt. it does not and will not issue preferred stocks in the future. what is the cost of equity for this company?

## Answers

oof

explanation:

f

Ithink it is a i’m not for sure

u = 30

continuing your method

[tex]\frac{1}{10}[/tex] = [tex]\frac{1}{u}[/tex] + [tex]\frac{1}{15}[/tex]

subtract [tex]\frac{1}{15}[/tex] from both sides

[tex]\frac{1}{u}[/tex] = [tex]\frac{1}{10}[/tex] - [tex]\frac{1}{15}[/tex] thus

[tex]\frac{1}{u}[/tex] = [tex]\frac{3}{30}[/tex] - [tex]\frac{2}{30}[/tex]

[tex]\frac{1}{u}[/tex] = [tex]\frac{1}{30}[/tex] ⇒ u = 30

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