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Johnson Inc has 2,000 bonds and 300,000 shares of common stock outstanding. The common stock has a beta of 1.3 and trades at $18 per share . The bonds are $1,000 face value with a 5% coupon rate, paid semi-annually, and currently trade at $985. 8 years to maturity with a YTM of 5.24%. The firm is in 40% tax bracket. The market risk premium is 6% and yield on 10 year U.S. treasuries is 4%. The CAPM holds. Using CAPM what is the required rate of return on firm's equity?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91615771

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