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Cablevision Inc. has bonds with a coupon rate of 12% (assume annual payments) , and a maturity of 30 years. These bonds today are selling for $1392.73. Additionally, the firm's beta is 1.2, the risk-free rate is 5 percent, and the expected market return is 13%. The firm has $300M of debt and $550M of Equity on its balance sheet. The firm's stock price is $20/share, its current dividends are $1.50 per share, and these dividends are expected to grow at 7% per year. The book value of equity is $10/share. The firm's tax rate is 40%. The flotation costs of bonds are 4%, and for stock issues it is 8%. The firm plans on satisfying 75% its equity needs internally and 25% of it externally.
a. Find the firm's cost of debt.
b. Find the firm's cost of internal equity using the CAPM.
c. Find the firm's cost of internal equity using the dividend growth model
d. Find the firm's cost of external equity using the dividend growth model
e. Find the firm's cost of external equity using CAPM
f. Find the firm's WACC using the dividend growth model for the firm's costs of internal and external equity.
g. Find the firm's weighted average cost of capital (WACC) using CAPM in calculating the firm's costs of internal and external equity.
h. Under what assumptions would it be appropriate for the firm to use its WACC as the discount rate in evaluating its projects?
Wiki User
∙ 6y ago
To calculate the Weighted Average Cost of Capital (WACC), you need to determine the weight of each source of capital (equity and debt) in the company's capital structure. Multiply the weight of equity by the cost of equity, and multiply the weight of debt by the cost of debt (adjusted for taxes). Add these results to get the WACC. The formula for WACC is: WACC = (E/V) * Re + (D/V) * Rd * (1 - Tax Rate), where E is equity, V is the total value of the company, Re is the cost of equity, D is debt, Rd is the cost of debt, and Tax Rate is the corporate tax rate.
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What does wacc measure?
WACC is a component used in finance to measure the company's cost of capital, usually as a discounting factor and the companies use debt or equity for financing.
How do you calculate WACC?
how to calculate WACC how to calculate WACC how to calculate WACC how to calculate WACC
Why WACC represents an opportunity cost to investors?
Wacc Farmula
What happens to the WACC when the federal reserve tightens credit?
WACC will increase.
The goal of applied science is?
It is to use science for a practical job or to solve a problem.
What impact does WACC have on capital budgeting and structure?
What impact does WACC have on capital budgeting and structure?
What the different between accounting and finance?
Accounting is a phylosophical science that helps to a language by which you can understand any information passed by a business. Finance is an important tool of a busuness that helps to solve any kind of finantial problem faced by the business.
What is the difference between solving a problem and analyzing a problem?
When you analyze a problem you look it over which is what analyzing means. You look over the problem and then you solve it. When you solve a problem you solve it and you use certain steps and solve it but of course everyone has there ways to solve a problem but some people have ways to solve it by just analysing it. That is the difference.
Why doesn't everyone calculate WACC the same?
because of WACC nature, there are no same utility, and that's why none make same calculation. so WACC=X2+2X3+5X2=0 ? because of WACC nature, there are no same utility, and that's why none make same calculation. so WACC=X2+2X3+5X2=0 ?
What problem did the the trampoline solve?
It didn't solve any problem it was invented as a sport not as a way to solve anything...
What is the relationship between wacc and discount rate of return?
relationship between WACC and required rate of return.
Can sasol process solve south Africa's petrol problem?
no it can not solve the problem
