The capital structure of truman industries inc consists of, Ask an Expert

Finance

The capital structure of Truman Industries, Inc. consists of bonds and common stock equity. TI’s tax rate is 30%. The details on the various components of its capital structure are as follows:

Bond:

Type: Fixed Semi-annual Coupon, Non-callable

Maturity: 15 Years

Coupon rate: 8.00%

Par Value: $1,000

Current price: $950

Common Stock:

Beta: 1.2

Risk free rate: 4.0%

Expected return of the market: 12.00%

a) What is the after-tax cost of debt of Bond?

b) What is the after-tax cost of equity of the Common Stock of TI?

c) Truman’s target capital structure consists is 60% debt with remainder in equity financing. Using costs of debt and equity in two parts above find TI’s WACC.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92414966

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