1 & 2

risk free rate: 1.75% expected rate of return for the market: 9.5% Beta of VZ: 0.88 VZ total debt, interest and shares issued can be found in VZ financial statements assume market value of all debt is 100% of face(par) value. tax rate is 20% VZ stock price: $55 initial investment: 4,500,000 year 1 cash flow: 1,100,000 year 2 cash flow: 1,200,000 year 3 cash flow: 1,350,000 year 4 cash flow: 1,550,000 year 5 cash flow: 1,750,000 use the appropriate information given, Also refer to the VZ financial statements and calculate the following ratios: 1. Debt equity ratio 2. Times interest earned 1. Cost of Equity Ke = Rf +Beta (Rm - Rf) Where, Rf = Risk free Rate Ke = 0.0175 +0.88 (0.095-0.0175) Rm = Expected Retrun of market Ke = 8.57% or 0.0857 Ke = Cost of Equity 2. After Tax cost of Debt Assumption: Since Coupon rate of debt is not given, considering Expected Rate of return of market to be Coupon Rate. Cost of Debt (Kd) = Coupon Rate (1- Tax Rate) = 0.095 (1-0.20) 0.076 or 7.6 % 3. Calculation of WACC Assumption: Since Debt and Equity amount is not given, considering Debt Equity ratio to be ideal i.e. 2:1 WACC = Weight of Debt Cost of Debt + Weight of Equity * Cost of Equity (1/3) - 0.076 + (2/3) "0.0857 = 0.0825 or 8.25% risk free rate: 1.75% expected rate of return for the market: 9.5% Beta of VZ: 0.88 VZ total debt, interest and shares issued can be found in VZ financial statements assume market value of all debt is 100% of face(par) value. tax rate is 20% VZ stock price: $55 initial investment: 4,500,000 year 1 cash flow: 1,100,000 year 2 cash flow: 1,200,000 year 3 cash flow: 1,350,000 year 4 cash flow: 1,550,000 year 5 cash flow: 1,750,000 use the appropriate information given, Also refer to the VZ financial statements and calculate the following ratios: 1. Debt equity ratio 2. Times interest earned 1. Cost of Equity Ke = Rf +Beta (Rm - Rf) Where, Rf = Risk free Rate Ke = 0.0175 +0.88 (0.095-0.0175) Rm = Expected Retrun of market Ke = 8.57% or 0.0857 Ke = Cost of Equity 2. After Tax cost of Debt Assumption: Since Coupon rate of debt is not given, considering Expected Rate of return of market to be Coupon Rate. Cost of Debt (Kd) = Coupon Rate (1- Tax Rate) = 0.095 (1-0.20) 0.076 or 7.6 % 3. Calculation of WACC Assumption: Since Debt and Equity amount is not given, considering Debt Equity ratio to be ideal i.e. 2:1 WACC = Weight of Debt Cost of Debt + Weight of Equity * Cost of Equity (1/3) - 0.076 + (2/3) "0.0857 = 0.0825 or 8.25%