| OPTIMUM CAPITAL STRUCTURE |
| Input data in millions expect price per share and debt |
| Tax rate | | | | | 21% |
| debt | | | | | $37,730,000,000 |
| number of shares | | | | | 4280000000 |
| Stock price per share | | | | | $57 |
| CAPITAL STRUCTURE (in millions expect per share ) |
| Market value of equity | | | | | $243,960,000,000 |
| Total value | | | | | $281,690,000,000 |
| Percent financed with debt | | | | | 13.40% |
| Percent financed with equity | | | | | 86.60% |
| COST OF CAPITAL |
| cost of debt | | | | | 1.12% |
| beta | | | | | 0.54 |
| risk free rate | | | | | 1.00% |
| Market risk premium | | | | | 5 |
| cost of equity | | | | | 0.50% |
| | | | | | 6.04% |
| COST OF EQUITY FROM DIVIDEND GROWTH MODEL |
| Future growth rate | | | | | 4.90% |
| last dividend | | | | | 0.027 |
| share price | | | | | $57 |
| Cost of equity | | | | | 4.95% |
| COST OF EQUITY FROM BOND PLUS MARKUP |
| costof debt | | | | | 1.12% |
| Risk Markup | | | | | 3.43% |
| Cost of equity | | | | | 4.55% |
| Average rs | | | | | 5.00% |
| WACC | | | | | 4.41% |
| | | | | PERCENT OF FIRM FINANCED BY DEBT |
| | | | | 5% | 10% | | 15% | | 25% | | 30% | | 35% | | 40% |
| Percent financed by debt | | | | 95% | 90.00% | | 85% | | 75% | | 70% | | 65% | | 60% |
| Cost of debt | | | | 0.88% | 1.10% | | 1.12% | | 1.5 | | 2% | | 2.25% | | 2.75% |
| levered beta | | | | 0.50% | 0.52% | | 0.55 | | 0.61 | | 0.64 | | 0.69 | | 0.73 |
| cost of equity | | | | 3.75% | 3.86% | | 4.03% | | 4.33% | | 4.54% | | 4.77% | | 5.04% |
| cost of debt(1-T) | | | | 0.70% | 0.87% | | 0.88% | | 1.19% | | 1.58% | | 1.78% | | 2.17% |
| WACC | | | | 3.60% | 3.56% | | 3.55% | | 3.55% | | 3.65% | | 3.72% | | 3.89% |
| Percent financed with equity=1-percent financed by stock |
| Levered beta= unlevered beta(1-Tax)(percent financed by debt/ percent financed by stock |
| Cost of equity=Risk free rate +(Risk market premiumx beta) |
| The after tax cost of debt=cost of debt(1-taxes) |
| WACC= wsrs+(wdrd x(1-T) |
| Hamada equation=Levered beta, b |
| Current debt financing |
| Current stoock financing |
| Tax rate |
| b=bu(1+(1-T)D/S |
| b=bu(1_1-T)wdws |
| bu=b/1+(!-T)wd/ws |
| Unlevered beta |
| Levered beta | b | | | | 0.54 |
| Current financing by use of debt | | | wd | | 13% |
| Current financing by use of stock(ws) | | | | | 87% |
| Tax rate(T) | | | | | 21% |
| | | | 9 |
cherodjones
WACC1.xlsx
