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SLL Corporations balance sheet is shown below. The current rate on treasury bonds is 7%. The
yield to maturity on SLL's bonds is 10%. Assume a market risk premium of 8%. SLL's tax rate is
40%. SLL's stock price is $45, and it has 2 million shares outstanding. SLL's beta is unknown
because it only recently went public, but it is known that a comparable firms stock has a beta of
1.2 and that the comparable firms debt ratio (D/(D+E)) is 0.4. What is the weighted-average cost
of capital for SLL's Corporation?
SLL's Corporation
Balance Sheet ($ millions)
Assets
Liabilities and Equity
Cash and securities
10
Bonds
20
Accounts receivable
50
Common stock
50
Inventory
50
Retained earnings
80
Net fixed assets
40
Total assets
150
Total liability and equity
150
SLL's Corporation
Balance Sheet ($ millions)
Assets
Liabilities and Equity
Cash and securities
10
Bonds
20
Accounts receivable
50
Common stock
50
Inventory
50
Retained earnings
80
Net fixed assets
40
Total assets
150
Total liability and equity
150

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SLL Corporation�s balance sheet is shown below. The current rate on .pdf

  • 1. SLL Corporations balance sheet is shown below. The current rate on treasury bonds is 7%. The yield to maturity on SLL's bonds is 10%. Assume a market risk premium of 8%. SLL's tax rate is 40%. SLL's stock price is $45, and it has 2 million shares outstanding. SLL's beta is unknown because it only recently went public, but it is known that a comparable firms stock has a beta of 1.2 and that the comparable firms debt ratio (D/(D+E)) is 0.4. What is the weighted-average cost of capital for SLL's Corporation? SLL's Corporation Balance Sheet ($ millions) Assets Liabilities and Equity Cash and securities 10 Bonds 20 Accounts receivable 50 Common stock 50 Inventory 50
  • 2. Retained earnings 80 Net fixed assets 40 Total assets 150 Total liability and equity 150 SLL's Corporation Balance Sheet ($ millions) Assets Liabilities and Equity Cash and securities 10
  • 3. Bonds 20 Accounts receivable 50 Common stock 50 Inventory 50 Retained earnings 80 Net fixed assets 40 Total assets 150 Total liability and equity 150