Question
Please answer both questions
A firm has zero debt in its capital structure. Its overall cost of capital is 10%. The firm is considering a new capital structure with 60% debt. The interest rate on the debt would be 8%. Assuming there are no taxes its cost of equity capital with the new capital structure would be: 8% 16% 13% 10% None of the above A corporate bond has one-year maturity. The bond pays an interest of $50 and principal of $1,000 at the time of maturity. If the bond has 10% probability of default and payment under default is $400, calculate the expected payment from the bond. $1.050 $400 $985 None of the above
Explanation / Answer
.6 * 8 +.4*10= 4.8 +4= 8.8 (E none of the above)
1050*.9 +400*.1= 985 (c)