Discoverit! Company has just paid $1.5 dividend payment. The current stock price is $20 and has 2,500,000 outstanding shares. Calculate the growth rate using the dividend payments given under Dividend Growth Tab of this same Excel Sheet and keep two decimals when you use this growth rate in DGM. Calculate cost of equity, based on DGM.

The company has a beta of 1.2 and return on the market is 6%. Risk free rate is 2.2%. Calculate cost of equity, based on SML.

The company has 500,000 preferred stock outstanding with selling price of $25 and dividend payment of $3.

Discoverit! has only one bond outstanding with a maturity period of 10 years. The bond makes semiannual coupon payments and the coupon rates is 10%. The selling price of the bond is $1,050 and face is $1,000. The tax rate is 21% and the company has 2,000 bonds outstanding. Calculate before and after-tax cost of debt.

Calculate WACC using SML approach to calculate Cost of Equity.

Calculate WACC using Dividend Growth Model approach to calculate Cost of Equity.

Note: All the blue highlighted cells on the WACC worksheet are the numbers that you can just get from the question and enter in your excel sheet.

Note: All the orange highlighted cells on the WACC worksheet require calculation.

COST OF EQUITY 1. Dividend Growth Model (DGM) Approach DO/D1 (Decide which dividend is given in the problem) G (Calculate this in Divident Growth Tab) PO Required Return - Cost of Equity 2. SML Approach Risk-free rate Beta E(Rm) E(Rstock) - Cost of Equity Stock Price Bond Price Preferred Stock Price WEIGHTS Stocks outstanding Bonds outstanding PS outstanding EQUITY DEBT PREFERRED STOCK VALUE OF FIRM Weight of Equity Weight of Debt Weight of PS COST OF PREFERRED STOCK Dividend Price Cost of preferred stock COST OF DEBT WACC - Based on Dividend Growth Model (Use B6 for Cost of Equity) WACC = Cost of Common Stock x Weight of Common Stock + Cost of Prefe where you use Required Return for Cost of Equity N (in years) WACC - Based on SML Approach (Use E6 for cost of equity) Coupon Rate (Use this to calculate the coupon payment.) WACC = Cost of Common Stock x Weight of Common Stock + Cost of Prefe where you use E(Rstock) for Cost of Equity Semiannual-Coupon Payment Bond N Coupon Payments Price Face Rate - Period Rate YTM - Before-tax cost of debt Tax Rate After-tax cost of debt Refer the Chp6 if you have difficulties calculating YTM. COST OF EQUITY 1. Dividend Growth Model (DGM) Approach DO/D1 (Decide which dividend is given in the problem) G (Calculate this in Divident Growth Tab) PO Required Return - Cost of Equity 2. SML Approach Risk-free rate Beta E(Rm) E(Rstock) - Cost of Equity Stock Price Bond Price Preferred Stock Price WEIGHTS Stocks outstanding Bonds outstanding PS outstanding EQUITY DEBT PREFERRED STOCK VALUE OF FIRM Weight of Equity Weight of Debt Weight of PS COST OF PREFERRED STOCK Dividend Price Cost of preferred stock COST OF DEBT WACC - Based on Dividend Growth Model (Use B6 for Cost of Equity) WACC = Cost of Common Stock x Weight of Common Stock + Cost of Prefe where you use Required Return for Cost of Equity N (in years) WACC - Based on SML Approach (Use E6 for cost of equity) Coupon Rate (Use this to calculate the coupon payment.) WACC = Cost of Common Stock x Weight of Common Stock + Cost of Prefe where you use E(Rstock) for Cost of Equity Semiannual-Coupon Payment Bond N Coupon Payments Price Face Rate - Period Rate YTM - Before-tax cost of debt Tax Rate After-tax cost of debt Refer the Chp6 if you have difficulties calculating YTM