Question
BHP Billiton, an Australian company, just paid $0.85 as a dividend, which is expected to grow at 5.0 per cent. Its most recent stock price
BHP Billiton, an Australian company, just paid $0.85 as a dividend, which is expected to grow at 5.0 per cent. Its most recent stock price is $72. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 60 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 22 per cent corporate tax rate. This year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. Therefore, you expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely.
1. What is the cost of equity in %?
2. what is post-tax cost of debt in %?
3. What is the WACC in %?
4. What is the value of the company?
5. What is the price per share?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started