Question

14 A Saved Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $80, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $125 million, a coupon rate of 5 percent, and sells for 91 percent of par. The second issue has a face value of $110 million, a coupon rate of 4 percent, and sells for 106 percent of par. The first issue matures in 23 years, the second in 9 years. Suppose the most recent dividend was $4.80 and the dividend growth rate is 5.1 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) inces WACC

Answer 1

5% Coupon 46 23*2 nper 25 1000*5% 1 /2 -910 1000*91% pmt Cost of Equity (DO*(1+g)/PO)+g (4.80*(1+0.051)/80)+0.051 pv fv 1000 RATE(46,25,-910,1000) 0.11406 ytm ytm p.a 11.41% 2.85% 0.0570763 Weight Market value After tax debt product Cost 5% Coupon 4% Coupon 0.0570763*(1-0.21) $113,750,000.00 0.493813762 125000000*91 % 0.04509024 0.022266181 0.045090 4.51% $116,600,000.00 0.506186238 0.025489612 110000000*106 % 0.012902491 4% Coupon $230,350,000.00 0.035168672 18 9*2 nper pmt 20 1000*4%*1/2 weight $230,350,000.00 0.264663641 0.035168672 $640,000,000.00 0.735336359 product Market value -1060 1000106 % Cost pv Debt fv 0.009307869 1000 Equity RATE(18,20,-1060, 1000) 8000000*80 0.11406 0.083872465 WACC $870,350,000.00 1.61% 0.093180334 ytm 9.32% WACC ytm p.a 0.0322653 Wacc 9.32% After tax debt 0.0322653*(1-0.21) 0.025489612 2.55%