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Cost of Debt & Equity

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#1. Suppose the 10-year Treasury rate is current 3.54 percent. You analyze your
firm's financial ratios and determine that it is most similar to BB-rated firms,
which currently have a spread over the 10-year Treasury of 400 basis points.
Calculate your firm's cost of debt.

#2. Firm B expects to pay a dividend next year of $4 per share and that its dividend will grow at a constant rate of 5 percent indefinitely into the future. Firm B's stock price is currently $25 per share. Use the dividend discount model to
calculate the cost of equity.

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#1. Suppose the 10-year Treasury rate is current 3.54 percent. You analyze your firm's financial ratios and determine that it is most similar to BB-rated firms,
which currently have a spread over the ...

Purchase this Solution


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