Due: 1120/2018 (Beginning of class) Each group turns in a single write-up. In questions that require calculations, you must show your work in order to get full credit. Simply circling an answer will receive no credit. For questions 9, 10 & 13, use the excel file. Turn in a print out of both the word/pdf & the excel file. Simply circling an answer will receive no credit. You are trying to estimate the value of Pear Corporation using the WACC approach. As a first step, you decided to estimate the company's cost of debt. While the company's current D/V is 0.20, you noticed that the company is expected to approximately double its D/V ratio next quarter. Therefore, you decided to work with a target D/V ratio equal to 0.40. You also noticed that the current rating of the company's debt is A and that this rating is expected to be downgraded to BBB- as a consequence of the expected increase in leverage. Therefore, you expect the company to have a BBB- rating from next quarter on. This motivated the collection of the information below (Q1-04: VERY IMPORTANT QUESTIONS!) U.S. Govenment Debt (Treasuries) Matucity Historical Average Yield Current Yield 1 Year 2.70 0.55 30 Years 4.30 3.10 te Debt (A- Rating) Matnity Histodical Areage Spread Cncrent Spread 1 Year 1.20 0.90 210 1.30 Corporate Debt (BBB- Rating) Matuoty 1 Year 1.50 1.10 30 Years 2.50 1.60 Historical Aver Oucent Spcead Note: All mmbecs above ace in pexcentage points. The spread for the corporate debt is compsted as the diffezence between the yields and the tisk-free rate of same matucity 1. Estimate the cost of debt for Pear Corporation. Due: 1120/2018 (Beginning of class) Each group turns in a single write-up. In questions that require calculations, you must show your work in order to get full credit. Simply circling an answer will receive no credit. For questions 9, 10 & 13, use the excel file. Turn in a print out of both the word/pdf & the excel file. Simply circling an answer will receive no credit. You are trying to estimate the value of Pear Corporation using the WACC approach. As a first step, you decided to estimate the company's cost of debt. While the company's current D/V is 0.20, you noticed that the company is expected to approximately double its D/V ratio next quarter. Therefore, you decided to work with a target D/V ratio equal to 0.40. You also noticed that the current rating of the company's debt is A and that this rating is expected to be downgraded to BBB- as a consequence of the expected increase in leverage. Therefore, you expect the company to have a BBB- rating from next quarter on. This motivated the collection of the information below (Q1-04: VERY IMPORTANT QUESTIONS!) U.S. Govenment Debt (Treasuries) Matucity Historical Average Yield Current Yield 1 Year 2.70 0.55 30 Years 4.30 3.10 te Debt (A- Rating) Matnity Histodical Areage Spread Cncrent Spread 1 Year 1.20 0.90 210 1.30 Corporate Debt (BBB- Rating) Matuoty 1 Year 1.50 1.10 30 Years 2.50 1.60 Historical Aver Oucent Spcead Note: All mmbecs above ace in pexcentage points. The spread for the corporate debt is compsted as the diffezence between the yields and the tisk-free rate of same matucity 1. Estimate the cost of debt for Pear Corporation
