JnH Co Inc. is a U.S. energy company with operations in oil and gas exploration and development (E\&P) and refining and marketing (R\&M). The marginal tax rate (Tc) is 40% and the market risk premium is 5%. The current 30 -year U.S. Treasury bond yield is 2.8%. The target consolidated debt-to-value ratio, set in consultation among division and corporate executives and the board, is 30% (this is the firm's target for the proportion of net debt to enterprise value). Use net debt in your calculations (instead of total debt) consistently throughout the entire problem! Use the following data in order to calculate the prevailing consolidated debt-to-value ratio in part (a) below: a. Derive an estimate of rE based on the target consolidated debt-to-value ratio using the CAPM. Use the 20-year U.S. Treasury bond yield as rf. E=1.30 and it is based on the prevailing consolidated debt-to-value ratio. To determine an appropriate estimate of equity beta based on the target capital structure, unlever E=1.30 and then relever Ancwar. b. Based on its credit rating, JnH Co Inc.'s spread over 20 -year Treasuries is 1.62%. What is your estimate of rD? Use the Treasury spread approach. Ancwar. c. Derive an estimate of rWACC based on the target consolidated debt-to-value ratio. JnH Co Inc. is a U.S. energy company with operations in oil and gas exploration and development (E\&P) and refining and marketing (R\&M). The marginal tax rate (Tc) is 40% and the market risk premium is 5%. The current 30 -year U.S. Treasury bond yield is 2.8%. The target consolidated debt-to-value ratio, set in consultation among division and corporate executives and the board, is 30% (this is the firm's target for the proportion of net debt to enterprise value). Use net debt in your calculations (instead of total debt) consistently throughout the entire problem! Use the following data in order to calculate the prevailing consolidated debt-to-value ratio in part (a) below: a. Derive an estimate of rE based on the target consolidated debt-to-value ratio using the CAPM. Use the 20-year U.S. Treasury bond yield as rf. E=1.30 and it is based on the prevailing consolidated debt-to-value ratio. To determine an appropriate estimate of equity beta based on the target capital structure, unlever E=1.30 and then relever Ancwar. b. Based on its credit rating, JnH Co Inc.'s spread over 20 -year Treasuries is 1.62%. What is your estimate of rD? Use the Treasury spread approach. Ancwar. c. Derive an estimate of rWACC based on the target consolidated debt-to-value ratio
