Cost of equity for HP is 11.93, beta for HP is 1.78, treasury bill yield is 0.68%, Industry average beta is 1.16375

1) You need to calculate the (weighted average) cost of debt for HP. To do so, you must first calculate the market and book values of each outstanding bond issue (explained below under (a). Then for each bond issue, you must compute both market and book value weights, and multiply each bond weight by the yield to maturity (YTM) of the bond. Summing up the weighted YTMs of all bonds will give you the weighted average (pretax) cost of debt for HP. Please refer to the steps below:

a) In order to find the market value of each bond issue, look at the current price of the bond - i.e. under "Last Sale Price". This is the market value of the bond issue expressed as a percentage of par (or the original issue price).

						Ratings		Last Sale
Issuer Name	Symbol	Callable	Sub-Product Type	Coupon	Maturity	Moody	S&P	Price	Yield
HEWLETT PACKARD CO	HPQ.GZ	Yes	Corporate Bond	3.75	12-01-2020	Baa2	BBB	104.21	2.537
HEWLETT PACKARD CO	HPQ.AD	Yes	Corporate Bond	4.3	06-01-2021	Baa3	BBB	105.432	2.903
HEWLETT PACKARD CO	HPQ.AI	Yes	Corporate Bond	6	09-15-2041	Baa4	BBB	102.95	5.773
HEWLETT PACKARD CO	HPQ.AH	Yes	Corporate Bond	4.375	09-15-2021	Baa5	BBB	105.742	2.986
HEWLETT PACKARD CO	HPQ.HB	Yes	Corporate Bond	4.65	12-09-2021	Baa6	BBB	106.75	3.089
HEWLETT PACKARD CO	HPQ3829331	Yes	Corporate Bond	4.05	09-15-2022	Baa7	BBB	104.199	3.203
HEWLETT PACKARD CO	HPQ4088661	Yes	Corporate Bond	2.75	01-14-2019	Baa8	BBB	101.212	2.051
HEWLETT PACKARD CO	HPQ4088662		Corporate Bond	1.963	01-14-2019	Baa9	BBB	100.1

b) To find the book value of a bond issue, click on the link under the "Symbol" column for the bond issue, and you will be taken to a page that shows the details for that bond issue, such as the number of bonds that were originally issued, and the amount outstanding (i.e. the par value of 'outstanding' bonds - this is because some of the bonds that were part of the original issue may have been called early, we are interested in the amount outstanding), the payment frequency (i.e. the number of coupon payments per year), etc. The original (i.e. book) value of a bond with a par of $100 (i.e. one hundred dollars) is indicated by the "Price at Offering". Therefore, if we divide the Price at Offering by $100, we can use this percentage to find the book value of the outstanding bonds in this bond issue.

Issuer Name	Symbol	Amount Outstanding	Original Offering	Payment Frequency	Price at Offering	% of book value
HEWLETT PACKARD CO	HPQ.GZ	$648,781.00	$1,350,000.00	Semi-Annual	$99.83	99.83%
HEWLETT PACKARD CO	HPQ.AD	$1,250,000.00	$1,250,000.00	Semi-Annual	$99.80	99.80%
HEWLETT PACKARD CO	HPQ.AI	$1,200,000.00	$1,200,000.00	Semi-Annual	$99.86	99.86%
HEWLETT PACKARD CO	HPQ.AH	$1,000,000.00	$1,000,000.00	Semi-Annual	$99.82	99.82%
HEWLETT PACKARD CO	HPQ.HB	$1,500,000.00	$1,500,000.00	Semi-Annual	$99.71	99.71%
HEWLETT PACKARD CO	HPQ3829331	$500,000.00	$500,000.00	Semi-Annual	$99.77	99.77%
HEWLETT PACKARD CO	HPQ4088661	$299,794.00	$1,250,000.00	Semi-Annual	$99.95	99.95%
HEWLETT PACKARD CO	HPQ4088662	$101,633.00	$750,000.00	Semi-Annual	$100.00	100.00%

Question 1: Now, find the yield to maturity (YTM) for each of HP's bonds and enter these in Microsoft Excel, along with the market values and book values of each bond issue. Enter all other relevant information in Excel and compute two estimates for the weighted average cost of debt for HP, one using book value weights and the other using market value weights, of the individual bond issues. (Please Show the work)

Question 2: Does it make a difference in this case if you use book value weights or market value weights to compute HPs weighted average cost of debt? Explain why, or why not.

Question 3: You now have all the necessary information to calculate the weighted average cost of capital (WACC) for HP. Calculate the weighted average cost of capital for HP using market value weights only, assuming HP has a 35 percent marginal tax rate. (Note that the book value weight for equity will be negative for HPQ, so using book value weights for WACC is not meaningful!). (Please Show the work)