Question
For the most recent fiscal year, book value of long-term debt at Schlumberger was $10,184 million. The market value of this long-term debt is approximately
For the most recent fiscal year, book value of long-term debt at Schlumberger was $10,184 million. The market value of this long-term debt is approximately equal to its book value. Schlumbergers share price currently is $58.92. The company has 1,000 million shares outstanding.
Managers at Schlumberger estimate that the yield to maturity on any new bonds issued by the company will be 8.69%. Schlumbergers marginal tax rate would be 35%.
Schlumbergers beta is 0.76. Suppose that the expected return on the market portfolio is 8% and the risk-free rate is 2%.
Assume that the company will not change its capital structure. Also assume that the business risk of the projects under consideration is about the same as the business risk of Schlumberger as a whole.
What would Schlumbergers after-tax WACC be, given this information?
Do not round at intermediate steps in your calculation. Express your answer in percent. Round to two decimal places. Do not type the % symbol.
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