Wiess Energy is an oil exploration firm in the Permian Basin.
Weiss is a publicly held company, but it does not pay a dividend
because it is a young, growing company.
1. Using the estimated risk-free rate and equity market risk
premium of Damodaran, if Wiess has a beta of 1.5, what is its
estimated cost of equity, according to the capital asset pricing
model (CAPM)?
2. If Weiss has an expected free cash flow next year of 5 MUSD and
a market value of 100 MUSD, and the CAPM is a good estimate of its
cost of equity, what is the implied growth rate of free cash flow
for Wiess?
3. If Wiess wished to pay a dividend, what would be an appropriate
amount in total?
4. If the cost of debt for Wiess is 7 %, and Wiess would like to
finance its future investments with 40 % retained earnings and 60 %
debt, what is its weighted-average cost of capital (WACC) if the
corporate income tax rate is 21 %?
Wiess Energy is an oil exploration firm in the Permian Basin. Weiss is a publicly held...
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