Author Question: Pan American Airlines' shares are currently trading at $69.25 each. The yield on Pan Am's debt is 4% ... (Read 155 times)

stephzh · **on:** Apr 25, 2021

Pan American Airlines' shares are currently trading at $69.25 each. The yield on Pan Am's debt is 4% and the firm's beta is 0.7. The T-Bill rate is 4% and the expected return on the market (E (k_M)) is 9%. Pan American Airlines pays a combined federal and state tax rate of 35%. The company's target capital structure is 25% debt and 75% equity. Pan Am's cost of debt is 2.6% and the company's cost of equity is 7.5%. What is the weighted average cost of capital for Pan Am?
◦ 2.6%
◦ 4.3%
◦ 5.3%
◦ 6.3%
◦ 7.5%

Benayers · **Reply #1 on:** Apr 25, 2021

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