Slobe Telecom is considering a project for the coming year that will cost P50 million. Slobe plans to use the following combination of debt and equity to finance the the investment: a. Issue P15 million of 20-year bond at a price of 101, with a coupon rate of 8%, and floatation costs of 2% of par. b. Use P35 million of funds generated from earnings. The equity market is expected to earn 12%. US treasury bonds are currently yielding 5%. The beta coefficient of Slobe is estimated to be .60. Slobe is subject to to an effective tax rate of 40%. The before-tax cost of Slobe's planned debt financing , net of flotation costs, in the first year is ________. Assume the after-tax costs of debt is 7% and the cost of equity is 12%. The WACC must be _______. The company's expected rate of return under the CAPM must be ________.

Slobe Telecom is considering a project for the coming year that will cost P50 million. Slobe plans to use the following combination of debt and equity to finance the the investment: a. Issue P15 million of 20-year bond at a price of 101, with a coupon rate of 8%, and floatation costs of 2% of par. b. Use P35 million of funds generated from earnings. The equity market is expected to earn 12%. US treasury bonds are currently yielding 5%. The beta coefficient of Slobe is estimated to be .60. Slobe is subject to to an effective tax rate of 40%. The before-tax cost of Slobe's planned debt financing , net of flotation costs, in the first year is ____. Assume the after-tax costs of debt is 7% and the cost of equity is 12%. The WACC must be _. The company's expected rate of return under the CAPM must be ______.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 20P

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