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Eagle Construction Co. is a successful privately-held firm owned firm by Marquette alumni.
-It has $200 million bonds outstanding due in ten years with a 5% coupon paid semi-annually.
-They are valued at 90% of par value.
-The company also has 25 million shares of common stock outstanding among the partners. The stock book value is $2/share and is valued at $10/share.
-A survey of publicly-held firms in their industry estimates a beta of 1.3.
-The risk-free rate is 4% and the market equity return is 13%. Analysts suggest an additional 3% premium due to their small size
-Eagle’s tax rate is 20%.
Step One: Calculate the (pre-tax) yield-to-maturity of the bonds ____
Calculate the (after-tax) yield-to-maturity of the bonds
Step Two: Calculate the equity cost _
Step Three: Calculate the debt and equity mix (%) Debt Equity
Step Four: Calculate the WACC ____

Answer :

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