21 May HOW MUCH MONEY IS THE FIRM CONSIDERING BORROWING IF THE INTEREST RATE IS 8%?
Rowan Inc has 60,000 bonds outstanding and its bonds are priced at par with a coupon rate of 5% The current market price of the company’s stock is $45 per share . It is twice as risky as an average stock in the market. The 3-month US Treasury rate is 3.5% and the S&P 1500 index return is 11.25% Rowan Inc finances 30% of its assets with equity and the remaining portion with debt. Assuming that the tax rate is 35% what is the weighted average cost of capital of Rowan Inc
A firm is considering two different capital structures. The first option is an all-equity firm with 32,000 shares of stock. The second option is 20, 000 shares of stock plus some debt. Ignoring taxes, the breakeven level of earnings before interest and taxes between these 2 options is $48,000. How much money is the firm considering borrowing if the interest rate is 8%?
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