Table 19.6 is a simplified book balance sheet for Apache Corp. at year-end 2008. Here is some further information:
Number of outstanding shares (N) | 335.75 million |
Price per share (P) | $74.0 |
Beta | 1.21 |
Treasury bill rate | .11% |
20-year Treasury bond rate | 2.25% |
Cost of debt(rD) | 7.50 |
Marginal tax rate | 35% |
a. Calculate Apache’s WACC. Use the capital asset pricing model and the additional information given above. Make additional assumptions and approximations as necessary.
b. What is Apache's opportunity cost of capital?
c. Finally, go to the Standard&Poor's Market Insight Web site(www.inhhe.com/ edumarketinsighi) and update your answers to questions (a) and (b).
Table 19.6 Simplified book balance sheet for Apache, year-end 2008 (figures in $ millions).
Current assets | 4,451 | Current liabilities | 2,615 |
Net property, plant, and equipment | 23,959 | Long-term debt | 4,816 |
investments and other assets | 7,776 | Other iiabiiities | 5,246 |
|
| Shareholders' equity | 16,509 |
Total | 29,186 | Total | 29,186 |
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