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BUSINESS 3400 The bonds are currently trading at a price of $1,055 and have a coupon rate

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January 5th, 2018

Arc Media has 30 year debt outstanding worth $400 million. The bonds are currently trading at a price of $1,055 and have a coupon rate of 7% paid semi-annually (assume face value of the bond is $1,000). The company’s stock price per share is $50and it has 10 million shares outstanding. The tax rate is 34%. The equity beta of the firm is 1.2 and the risk-free rate and market risk premium are 4% and 6%, respectively. Estimate the cost of debt for this firm.What is the weighted average cost of capital (WACC) for this firm?If the company were to become unlevered, i.e., issue equity to buy back all of its debt, what would be its cost of capital after this restructuring was completed?

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