Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Intel wants to raise capital to build a factory to build chips in the U . S . The CEO asks you to calculate their

Intel wants to raise capital to build a factory to build chips in the U.S. The CEO asks you to calculate their weighted average cost of capital. He is unsure what the best capital structure is, so he wants you to optimize his capital structure. He does not want any more than 50% of his capital to come from debt and he wants to have at least 10% from preferred stock and at least 10% from common equity.
He gives you the following data.
Tax rate =20.11%.
20 year, 7.55% coupon, semiannual payment non-callable bonds sell for $990.
3 year 6.23% coupon bonds sell for $980. New bonds will be privately placed with no flotation cost.
9.36%, $100 par value, quarterly dividend, perpetual preferred stock sells for $147.36
Common stock sells for $37.95. They pay a dividend of $.50 and it has a growth rate of 5.5%.
Intel stock has a Beta of .88. The risk free rate is 3.75% and the market risk premium is 4.25%. Management believes their stock has a risk premium over their bonds of 1%. What is Intel's after tax cost of debt? A.4.80% b.5.37% c.5.45% d.6.11% What is Intel's cost of common equity using the CAPM method? A.5.90% b.6.85% c.7.49% d.8.42% What is Intel's cost of common equity using the BYRP method? A.5.56 b.7.26% c.801% d.8.65% What is Intel's weighted average cost of capital? A.4.33% b.6.36% c.6.86% d.7.66%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management

Authors: Rajiv Srivastava, Anil Misra

2nd Edition

0198072074, 9780198072072

More Books

Students also viewed these Finance questions