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Rekall Inc., the memory implant company, has 7 million shares of common stock outstanding and ...

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Rekall Inc., the memory implant company, has 7 million shares of common stock outstanding and ...

Rekall Inc., the memory implant company, has 7 million shares of common stock outstanding and 100,000 semi-annual bonds. The bonds have 6 years to maturity, a 9.05% coupon rate and a face value of $1,000 each. The common stock currently sells for $29.94 and just paid a dividend of $2.50. Dividends are paid annually and are expected to grow in perpetuity at 3%. The bonds sell for 94% of face value and have a 10.42% yield to maturity. The market risk premium is 5.5%, T-bills are yielding 5% and the tax rate is 30%. What is Rekall's cost of debt (after-tax)? Round to one decimal place.

▸ 7.3%

▸ 7.8%

▸ 8.6%

▸ 9.4%

▸ 10.4%

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Corporate Finance Online

Edition: 2^nd

Authors: Eakins, McNally

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