***COST OF EQUITY IS 15.20***

(25 Points) 3. As a measure (estimate) of FDX's cost of new issued debt, FDX Corp. has a Bond issue outstanding in the market that was issued on October 17, 2018 of $850,000,000 par value with a coupon rate of 4.950% (paid semiannually) that will mature on October 17, 2048 (assume today the bond has 27.0 years to maturity or 54 semiannual periods). The current price of the bond is 124.992 percent of par value (assuming a par value of $1000, the bond price is $1,249.92), what is the annual yield (YTM) on this bond (be sure you convert the YTM from semiannual to annual; also, you may want to use Excel). Use this annual YTM on the outstanding bond issue to estimate FDX's cost of new, 30-year maturity bonds. After estimating the cost of new FDX debt, calculate FDX's after tax cost of the new debt assuming a 26 percent income tax rate? Remember: After-tax cost = before-tax cost (1-tax rate). Use Excel Spreadsheet to calculate the YTM: SemiAnnual Yield= Annual YTM= After-tax cost debt = (15 Points) 4. Given the after-tax cost of new FDX 30-year bonds calculated in the previous problem and that ZACKS reports FDX's debt/equity ratio is 0.8451, which converts to its current market value capital structure of is 45.8% debt (Debt/Total Asset ratio is 45.8%) and 54.2% equity, (Equity/Total Asset ratio is 54.2%). What is the weighted average cost of capital (WACC) for FDX given the cost of debt and equity capital calculated above? FDX has no preferred stock. Remember: WACC = wa *(before-tax cost of debt)*(1-tax rate) + w*cost of equity WACC=