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If you like, you can use the YTM on a bond issue that is not callable as the pre-tax cost of debt for the company. As you recall, the formula for...
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If you like, you can use the YTM on a bond issue that is not callable as the pre-tax cost of debt for the company.
As you recall, the formula for WACC is:
rWACC = (E/E+D) rE + D/(E+D) rD (1-TC)
The formula for the required return on a given equity investment is:
ri= rf + βi * (RMkt-rf)
RMkt-rf is the Market Risk Premium. For this project, you may assume the Market Risk Premium is 5% unless you can develop a better number.
rf is the risk free rate. The risk free rate is normally the yield on US Treasury securities such as a 10-year treasury. For this assignment, please use 3.5%.
You may assume a corporate tax rate of 40%.
Conplete areport that contains the following elements:
· Your calculated WACC.
· How data was used to calculate WACC. This would be the formula and the formula with your values substituted.
· Sources for your data.
· A discussion of how much confidence you have in your answer. What were the limiting assumptions that you made, if any?
Include a Microsoft® Excel® file showing your WACC calculations discussed above.
