Final
You have the following information about a company:
Debt: 5,000 4% bonds with twelve years to maturity. The bonds sell for $1090 and the bonds make semi-annual payments
Equity: 100,000 shares outstanding selling for $50 per share. The beta is 2.3. The last dividend paid was $3.10 and the company intends to grow dividends at 5% per year.
Market: There is a 6% market risk premium.
The corporate tax rate is 35%
a) Given the above information, calculate the firm’s WACC
1)
MVD = 5000*1090 = 5.45m => 0.5215
MVE = 100,000*50 = 5.0m => 0.4785
Total MV = 10.45m
2) Cost of debt:
N=24
PV= -1090
FV=1000
PMT=20
I=1.548*2 =3.096
After tax cost of debt – 3.096%(1-0.35) =2.0124
Cost of equity:
R=D1/P0 + g
3.255/50 + 0.05 = 0.1151
WACC = wdrd(1-T) + wcers
= 0.5215(.020124) + .4785(.1151)
=.06557
= 6.56%