FM Foods is evaluating its cost of capital. Use the following information provided on December 31, 2017, to estimate FM's after-tax cost of equity capital. Yield to maturity on long-term government bonds: 4.4% Yield to maturity on company long-term bonds: 6.3% Coupon rate on company long-term bonds: 7% Historical excess return on common stocks: 6.5% Company equity beta: 1.20 Stock price: $40.00 Number of shares outstanding (millions): 240 Book value of equity (millions): $5,240 Book value of interest-bearing debt (millions): $1,250 Tax rate: 35.0%

FM Foods is evaluating its cost of capital. Use the following information provided on December 31, 2017, to estimate FM's after-tax cost of equity capital. Yield to maturity on long-term government bonds: 4.4% Yield to maturity on company long-term bonds: 6.3% Coupon rate on company long-term bonds: 7% Historical excess return on common stocks: 6.5% Company equity beta: 1.20 Stock price: $40.00 Number of shares outstanding (millions): 240 Book value of equity (millions): $5,240 Book value of interest-bearing debt (millions): $1,250 Tax rate: 35.0%

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 1hM

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