You have the following information about a company:
Debt: 5,000 2% bonds with fifteen years to maturity. The bonds sell for $1045 and the bonds make semi-annual payments.
Equity: 100,000 shares outstanding selling for $48 per share. The beta is 2.3. The copany expects to pay a dividend of $2.00 next year.
Market: There is a 6% market risk premium. The risk free rate is 2%. The corporate tax rate is 30%.
a) Given the above information, calculate the firm's WACC. (5 marks)
b) What is the current yield on the company's bonds? (1 mark)
c) If the Bank of Canada increases interest rates tomorrow, what will happen to the price of the bond? (1 mark)
d) Is the firm more or less risky than the market? (1 mark)