Answered step by step
Verified Expert Solution
Question
1 Approved Answer
DT's shares are currently trading at $30 per share. There are 5 million shares outstanding and the equity beta is 1.2. DT has two outstanding
DT's shares are currently trading at $30 per share. There are 5 million shares outstanding and the equity beta is 1.2. DT has two outstanding debts. The first debt has par value of $10 million, coupon rate of 6% (payable semi-annually), maturity of 10 years and YTM of 5%. The second debt has par value of $15 million, coupon rate of 7% (payable semi-annually), maturity of 20 years, and is priced at 110% of par. The risk-free rate is 2.5% and the market risk premium is 6.5%. The tax rate of DT is 35%. [Keep at least 2 decimal places for dollar amounts and 4 decimal places for rates] 1. Calculate DT's cost of equity. 2. Calculate DT's after-tax cost of debt. 3. Calculate DT'S WACC. 4. Re-calculate the WACC of DT if DT changes to 70% debt-financed, its cost of debt is 7%, and its tax rate is 40%
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