14_13_SOKZAI

14_13_SOKZAI - What is the company’s WACC Component III...

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Your Code: SOKZAI Chapter: 14 Problem: 13 Component I: Based on the textbook chapter 14 question No.12 on page 466, suppose the most recent a current share price is $68, and dividend was $1.14 and the dividend growth rate is 4%. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The first bond has a YTM of 7.68% with a weighted average .5323. The second bone’s YTM is 7.17% with a weighted average .4677. The company’s E/V = .8595 The tax rate is 30%.
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Unformatted text preview: What is the company’s WACC? Component III: Cost of equity: R E = [1.14(1.04)/68]+.04 = .05743529 = 5.743529% Weighted Average aftertax cost of debt: weighted cost of debt x (1-T) R D = (1 - .3)[(.5323)(.0768)+(.4677)(.0717)] = .05209031 = 5.209031% WACC = (E/V)(R E ) + (D/V)(R D ) = .8595(.05743529) + (1 - .8595)(.05209031) = .05668432 = 5.668432%...
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This note was uploaded on 05/26/2011 for the course FINA 3000 taught by Professor Laplante during the Spring '08 term at UGA.

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