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Posted: January 7th, 2023

re-estimate the cost of capital. the value of the firm

I need to re-estimate the cost of capital. the value of the firm. Also discuss briefly the appropriateness of your re-estimated cost of capital as a discount rate for the projects.currently have 8,000 bonds outstanding paying a coupon of 7.5% p.a. The bonds have a $1,000 par value and the coupon payments are semi-annual. The bonds are currently selling for 92% of par and have 20 years to maturity. The company has 600,000 ordinary shares outstanding, currently selling for $57 per share, and 40,000 9% preference shares outstanding with a par value of $100, currently selling for $93 per share. The company also has a bank loan of $4 million with an interest rate of 7%. ABC has a tax rate of 30% and a beta of 1.5. It is expected that the company’s current capital structure will remain the same. Treasury bonds are yielding 3% but some firms have bonds on issue yielding as much as 15%. The market risk premium is expected to be 7%.

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