Hi, may someone please help with these problems. And if possible, may you also show me how you work it out.–Thank you.
1) Suppose your companyAc€?cs beta is 0.85, the risk free rate is 4.5% while the market return is 12%. What is the cost of equity from retained earnings based on the CAPM?
2) Several years ago your company sold a $1,000 par value, non-callable bonds that now has 12 years to maturity and a 8.00% annual coupon that is paid semiannually. The bond currently sells for $925, and the companyAc€?cs tax rate is 40%.
What is the component cost of debt for use in the WACC calculation?
3) Suppose that your company just paid a dividend of $1.2; the dividends are expected to grow at a constant rate of 5% indefinitely. TodayAc€?cs market price/share is $45. Suppose also that your company has some bonds outstanding in the market selling for $1,035. The bonds have 8 years left to maturity, with 8% coupon rate with semi-annual payments.
If your companyAc€?cs capital structure is 35% debt and 65% equity, with the tax rate of 40%, what is the WACC?