1
Cost of debt |
K = N |
Bond Price -flotation cost =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |
k=1 |
K =20 |
970-30 =∑ [(8*1000/100)/(1 + YTM/100)^k] + 1000/(1 + YTM/100)^20 |
k=1 |
YTM = 8.6405273415 |
After tax cost of debt = cost of debt*(1-tax rate) |
After tax cost of debt = 8.6405273415*(1-0.21) |
= 6.83 |
2
Cost of equity |
As per DDM |
Price= Dividend in 1 year/(cost of equity - growth rate) |
35 = 3.25/ (Cost of equity - 0.05) |
Cost of equity% = 14.29 |
3
WACC=after tax cost of debt*W(D)+cost of equity*W(E) |
WACC=6.83*0.6+14.29*0.4 |
WACC =9.81% |
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