INTEL The following is information for Intel Intel wants to pursue a new type of artificial intelligence (AI) chip that would be used in autonomous vehicles They want to know what they should use for their WACC (weighted average cost of capital) There are currently 20 year 4 2 coupon bonds that pay semi annual payments and are non callable available at a price of $1,025 44 and a face value of $1,000 Preferred stock sells for $220 13 and pays an annual dividend of $13 75 The current risk free rate is 1 and the market risk premium is 6 3 Intels common stock has a BETA of 1 22 It sells for a price of $57 24 per share and pays an annual dividend of $1 39 The dividend growth rate is expected to be 3 8 a year The bond yield risk premium is 4 Intel has a target capital structure of 40 debt, 10 preferred stock and the rest is common equity Intels tax rate is 18 7 1 Use the information provided about Intel to answer this question What is Intel's after tax cost of debt A 3 26 B 5 37 C 5 45 D 6 25 Use the information provided about Intel to answer this question What is Intel's cost of preferred stock A 5 08 B 6 25 C 7 03 D 8 14 Use the information provided about Intel to answer this question What is Intel's cost of common equity using the CAPM method A 5 90 B 6 17 C 8 69 D 11 42 Use the information provided about Intel to answer this question What is Intel's cost of common equity using the DCF method A 5 31 B 5 95 C 6 32 D 7 4 Use the information provided about Intel to answer this question What is Intel's cost of common equity using the BYRP method A 8 94 B 7 26 C 8 01 D 8 47 Use the information provided about Intel to answer this question What is Intel's weighted average cost of capital A 5 77 B 7 73 C 8 86 D 7 66 If Intel has a WACC of 7 and they have a project that will provide them a profit of 5 3 , then Intel should pursue the project True False

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 04, 2024

INTEL The following is information for Intel. Intel wants to pursue a new type of artificial intelligence (AI) chip that would be used in autonomous

INTEL

The following is information for Intel. Intel wants to pursue a new type of artificial intelligence (AI) chip that would be used in autonomous vehicles.

They want to know what they should use for their WACC (weighted average cost of capital).

There are currently 20 year 4.2% coupon bonds that pay semi-annual payments and are non-callable available at a price of $1,025.44 and a face value of $1,000.

Preferred stock sells for $220.13 and pays an annual dividend of $13.75.

The current risk free rate is 1% and the market risk premium is 6.3%. Intels common stock has a BETA of 1.22. It sells for a price of $57.24 per share and pays an annual dividend of $1.39. The dividend growth rate is expected to be 3.8% a year. The bond-yield risk premium is 4%.

Intel has a target capital structure of 40% debt, 10% preferred stock and the rest is common equity.

Intels tax rate is 18.7%.

Use the information provided about Intel to answer this question.

What is Intel's after tax cost of debt?

A.
3.26%

B.
5.37%

C.
5.45%

D.
6.25%
Use the information provided about Intel to answer this question.

What is Intel's cost of preferred stock?

A.
5.08%

B.
6.25%

C.
7.03%

D.
8.14%
Use the information provided about Intel to answer this question.

What is Intel's cost of common equity using the CAPM method?

A.
5.90%

B.
6.17%

C.
8.69%

D.
11.42%
Use the information provided about Intel to answer this question.

What is Intel's cost of common equity using the DCF method?

A.
5.31%

B.
5.95%

C.
6.32%

D.
7.4%
Use the information provided about Intel to answer this question.

What is Intel's cost of common equity using the BYRP method?

A.
8.94%

B.
7.26%

C.
8.01%

D.
8.47%
Use the information provided about Intel to answer this question.

What is Intel's weighted average cost of capital?

A.
5.77%

B.
7.73%

C.
8.86%

D.
7.66%
If Intel has a WACC of 7% and they have a project that will provide them a profit of 5.3%, then Intel should pursue the project.

True

False