Question
Information for Walmart is given below: Walmart's target capital structure is 40% debt, 15% preferred, and 45% common equity. The firms tax rate is 40%.
Information for Walmart is given below:
Walmart's target capital structure is 40% debt, 15% preferred, and 45% common equity. The firms tax rate is 40%.
Walmart has the following market data: rrf = 4.00%; Market Risk Premium = 6.00%; and Beta = 1.05.
Walmart sold non-callable bonds several years ago that now are going to mature exactly in 1 year. This bond has a 6.00% annual coupon, paid annually, sells at a price of $1,075, and has a par value of $1,000.
Walmart's economists believe that the cost of preferred equity can be estimated using a risk premium of 2.50% over the firm's own cost of debt. What is the best estimated WACC of Walmart? Make assumptions when needed.
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