assignment
Urgent
1. Please adhere to directions on the attachment
2. No plagiarism, APA format
3. Need within 8 hrs or less
4. Only MBA worthy work; If you can not submit this level of work do not send a bid!!!!
8.2 Discussion
OCS Project Results
Share your OCS project findings on the discussion board. Add the following information to the WACC project findings you posted in Week 7:
Existing weights for capital structure and optimum weights
Should your company take on more debt, repurchase stock, have a seasoned equity offering? Justify your answers.
Submit a detailed post of at least 200 words. Include 1 citation beyond the text in APA style. sheet 1
OPTIMUM CAPITAL STRUCTURE
Input data in millions expect price per share and debt
Tax rate 21%
debt $37,730,000,000
number of shares 4280000000
Stock price per share $57
CAPITAL STRUCTURE (in millions expect per share )
Market value of equity $243,960,000,000
Total value $281,690,000,000
Percent financed with debt 13.40%
Percent financed with equity 86.60%
COST OF CAPITAL
cost of debt 1.12%
beta 0.54
risk free rate 1.00%
Market risk premium 5
cost of equity 0.50%
6.04%
COST OF EQUITY FROM DIVIDEND GROWTH MODEL
Future growth rate 4.90%
last dividend 0.027
share price $57
Cost of equity 4.95%
COST OF EQUITY FROM BOND PLUS MARKUP
costof debt 1.12%
Risk Markup 3.43%
Cost of equity 4.55%
Average rs 5.00%
WACC 4.41%
PERCENT OF FIRM FINANCED BY DEBT
5% 10% 15% 25% 30% 35% 40%
Percent financed by debt 95% 90.00% 85% 75% 70% 65% 60%
Cost of debt 0.88% 1.10% 1.12% 1.5 2% 2.25% 2.75%
levered beta 0.50% 0.52% 0.55 0.61 0.64 0.69 0.73
cost of equity 3.75% 3.86% 4.03% 4.33% 4.54% 4.77% 5.04%
cost of debt(1-T) 0.70% 0.87% 0.88% 1.19% 1.58% 1.78% 2.17%
WACC 3.60% 3.56% 3.55% 3.55% 3.65% 3.72% 3.89%
Percent financed with equity=1-percent financed by stock
Levered beta= unlevered beta(1-Tax)(percent financed by debt/ percent financed by stock
Cost of equity=Risk free rate +(Risk market premiumx beta)
The after tax cost of debt=cost of debt(1-taxes)
WACC= wsrs+(wdrd x(1-T)
Hamada equation=Levered beta, b
Current debt financing
Current stoock financing
Tax rate
b=bu(1+(1-T)D/S
b=bu(1_1-T)wdws
bu=b/1+(!-T)wd/ws
Unlevered beta
Levered beta b 0.54
Current financing by use of debt wd 13%
Current financing by use of stock(ws) 87%
Tax rate(T) 21%
9
Sheet2
Market value of equity
Price per share $57
Number of outstanding shares 4280million
Market value of equity 23960million
Total value
Debt 4280million
Add:
Market value of equity 23960million
Total value 281690million
Sheet 3
Percent financed by equity= Market value of equity/ total value
Market value of equity 23960million
Total value 281690
86.60%
Percent financed by debt
Debt/ Total value
Debt 37730 million
Total value 281690 million
Percent financed by debt 13.40%
Sheet 4
Cost of debt ERROR:#NAME?
Interest expense 849Million
1-Tax rate (1-0.21)
Outstanding debt 64329 Million
Cost of debt 1.12%
Risk free rate= 1+ Nominal Risk Free Rate/(1+ Inflation rate)
Nominal risk free rate 1+1.9%
Inflation 1+2.3%
Risk free rate 1
Cost of equity from dividend growth model ERROR:#NAME?
Last dividend 0.027
Current market share price 57
Current growth rate 0.049
Add growth rate 0.049
Cost of equity
(D(1+g)/P)+g
0.027(1+0.049)/57+0.049 4.95%
D-Dividend payout
g-Growth rate
P-Current market price
Cost of capital ERROR:#NAME?
Beta 0.54
Risk free rate 1.00%
risk premium 5.50%
Cost of equity 6.04%
Cost of equity from bond plus mark up
Cost of debt 1.12
Add:
Risk mark uo up 3.43
Cost of equity + mark up 4.55%
Risk mark up= risk free rate+Bi(Risk premium- Risk free rate)
Risk free rate 1
Bi 0.54
Risk premium 5.5
Risk free rate 1
3.43
Sheet 5
WACC=ws rs+wd rd(1-T)
Percent financed with stock(ws) 86.60%
Cost of equity 6.04%
Percent financed with debt 18.50%
Cost of debt 1.12%
Tax rate 21%
WACC 4.41%
