$2.$ Calculate a company$$s WACC.

Consider bonds outstanding:

Bond: Amount out $($$millions$)$ Current YTM:

A $$5,5007\mathrm{.}5\%$

B $$15,0005\mathrm{.}5\%$

C $$4,0006\mathrm{.}0\%$

D $$25,0004\mathrm{.}8\%$

There is no bank debt.

The company has a Beta of $0\mathrm{.}5.$ The market risk premium is $5\%$ and the risk free rate of return is $4\mathrm{.}2\%.$ The dividend yield is $2\mathrm{.}88\%$ and dividend growth is expected to be $4\mathrm{.}8\%$ a year. The company$$s shares trade at $$78\mathrm{.}60.$ There are $1\mathrm{.}25$ Billion shares outstanding. $($Use an average of cost of equity weighted $60\%$ using the CAPM method and $40\%$ using the dividend discount model.$)$ The tax rate is $21\%$Consider Company A that has $$150$ billion dollars in total shareholder equity and $$70$ billion dollars

in total long term debt. Further suppose, that the cost of equity is $20\%$ per year and the cost of debt

is $6\%$ per year. Assume the firm pays no taxes.

$($a$)$ Calculate the WACC for Company A$.$

$($b$)$ Suppose the company has decided to issue corporate bonds, which has increased its debt from

$70$ billion to $$100$ billion dollars. Calculate the return on equity $r_E$ for the additional debt, then

calculate the WACC.

$($c$)$ Compare part a$.)$ and b$.),$ what do you notice about the WACC in either case and why?

$($d$)$ Consider the free cash flows for Company A below:

Calculate the Enterprise Value assuming the growth rate in cash flows $()$ is $12\mathrm{.}3\%.$ What is the

share price of the firm if it has $2$ billion shares outstanding. Assume $2024$ is the first year, where

$t=1.$