Below we give extracts from the annual financial statements of four companies, together with information
concerning their stock market performance. Companies A and B are producers of fruit juices and other drinks from the beverage sector. The principal activities of companies C and D are the distribution of electronic components, microprosessor systems and related equipment. Company D is also involved in the manufacture of steel building products.
Assume that the return on government bonds is 11% and that the return on all long-term corporate loans is 12%. The market premium for risk should be assumed to be 9%.
a) Calculate the equity cost of capital, using both the dividend model and the CAPM.
b) Calculate the WACC for each of the four companies, assuming a corporation tax rate of 30%
c) Using both the information given in the question, and the results of your calculations in part(a), explain why the WACC's differ between the four companies.
Recently Asked Questions
- ACE entered into a noncancelable lease on January 2, 2019 with the following terms: A.ACE, a non-public company leased machinery manufactured by the lessor,
- ABC corp. issued a 3 and a half year, 4%, $100,000 of par value bonds on January 1, 2016. The 3-year treasury bond interest rate is 3.25%. The 4-year treasury
- please explain the process to complete the following question (d) What is the present value of $7,000 to be received at the end of each of 20 periods,