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2. The following are data on the cost of capital for Rearden Metal: - There are 16.4 billion shares outstanding, trading at $178 per share.
2. The following are data on the cost of capital for Rearden Metal: - There are 16.4 billion shares outstanding, trading at $178 per share. - The market value of debt is $136 billion in total. The average yield is 3.4%. - The beta for the firm currently is 1.20, the risk-free rate is 1% and the market risk premium is 7%. - The expected dividend payment for the next year is $0.88/ share, and it is expected to grow at 10% every year. - The tax rate is 20%. (1) Estimate the current cost of equity for Rearden Metal. Please use all the possible methods and then take the average as your final estimate. (2) What is the firm's pretax WACC and after-tax WACC? (3) Now assume that Rearden Metal considers adopting a new capital structure so that the debt-to-equity ratio becomes 25%, estimate the new cost of equity according to MM theory
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