Overall cost of capital: Stryder, Inc., has 3 million shares outstanding at a current price of $15 per share. The book value of the shares is $10 per share. The firm also has $30 million in par value of bonds outstanding. The bonds are selling at a price equal to 101 percent of par. What is the market value of the firm?

Question

Quizplus · Accepted Answer

To calculate the overall cost of capital, we need to find the market value of equity and debt separately and then add them up.

Market value of equity = Number of shares outstanding * Current price per share 
= 3,000,000 * $15 
= $45,000,000

Market value of debt = Par value of bonds outstanding * Bond price 
= $30,000,000 * 1.01 
= $30,300,000

Total market value of the firm = Market value of equity + Market value of debt 
= $45,000,000 + $30,300,000 
= $75,300,000

Therefore, the best choice is D.

Overall Cost of Capital: Stryder, Inc