question archive Armani is a firm manufacturing perfumes and other cosmetics and it sells its products worldwide
Subject:FinancePrice:2.86 Bought18
Armani is a firm manufacturing perfumes and other cosmetics and it sells its products worldwide. you are provided the following information –
· The long-term treasury bond rate is 8%.
· The market return is 6.5%
· There are 10 million shares outstanding, trading at $ 44 per share currently; the stock has been traded for only two years. A regression of stock returns against market returns yields a beta of 0.7, with a standard error of 0.9.
· The debt on the balance sheet has two components. The first is traded bonds, with eight years to expiration and a coupon rate of 8%; there are 50,000 bonds outstanding, trading at $ 800 apiece (the face value is $ 1000). The second is $50 million in bank debt, which also has a ten year maturity, and carries an interest rate of 7%. With a market value of $36.5 million
· the marginal tax rate is 44%
a. Estimate the cost of equity for Armani Inc.
b. Estimate the market value of debt and the after-tax cost of debt for Armani Inc.
c. Estimate the cost of capital for this firm using the market value weights
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