This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: 8,071.43 Step 4 Divide by # shares outstanding 8,071.43 100 $80.71 This is the estimated intrinsic value 3. ABC Company 40% debt 10% preferred stock 50% common stock Average coupon on bonds is 7% YTM is 8% Companys marginal tax rate is 35% Preferred stocks current dividend is $3.00 Current price is $40 Companys stocks beta is 1.2 Risk free rate is 4.0% Market risk premium is 8.0% What is cost of debt, cost of preferred stock , cost of equity and WACC Cost of debt= YTM (1t) .08 ( 1.35)= .052 or 5.2% Cost of preferred = current dividend Current price $3.00 $40.00 .075 or 7.5% Cost of Equity Use CAPM to determine r R = r rf +B(r mr rf ) R = .04 +1.2(.08) .136 or 13.6% WACC = (.40)(.052)+(.10)(.075)+(.50)(.136) .0208+.0075+.068 .0963 or 9.63%...
View
Full
Document
 Fall '08
 sloan

Click to edit the document details