Need help in understanding this practice problem. Step by step instructions would help me to understand the process, many thanks!
File Home Practice 5 v2 - Excel Insert Page Layout Formulas Data Review View Help 9 Tell me what you want to do Calibri G Copy Paste 29 Wrap Text General BIU - - Normal Bad Format Painter Merge & Center- $ - % , $68 98 Conditional Format as Check Cell Clipboard Font Formatting - Table Explanatory ... Alignment Number E11 After completing your graduate degree, you decide to take a job at Merc G H different drugs under development. One day, you are assigned to comple a job at Merck & Company (MRK), a well-known pharmaceutical company. Part of your job is to complete business case analyses for revenue forecast under the assumption that the drug passes its next round of testing ed to complete an analysis on a drug that has, so far, shown great promise for treating pancreatic cancer. After completing your xt round of testing, you know that you need to discount those cash flows to find the present value. The drug isn't the most risky project the company has ever tried to produce, but it also is not the least risky. You decide that the best way to treat these cash flows is as if the drug was an average risk project for the firm. Is the WACC the appropriate discount rate to use for this project? Why or why not? Yes, Many companies use WACC if the project's risks are similar to that of the company. If the project's risk profile is substantially different from that of the company, then CAPM is often used. Now calculate the following using the publicly-available information below. Cost of equity Cost of debt (pre-tax) 10 Weight of equity 11 |Weight of debt 2 WACC 13 15 MRK common stock beta: 16 YTM on 10-year US Treasury bond: 7 Average annual return on Vanguard Total Market Fund: 8.12% 8 Current MRK price per common share: 10.55% 19 Number of MRK common shares outstanding (in millions): 2 678 20 Corporate tax rate: 21% 21 23 2 The company has the following long-term debt outstanding. (Assume this is the only debt the firm has. Book Bond is Issue Coupon Rate Value Market Price Quote (per bond) YTM 25 2.75% notes due 2025 millions 2750 2,488 94.8400 3.7100% 26 3.70% notes due 204 27 2.80% notes due 2023 3.700% 1,973 2.800% 90.9900 4 32009 28 5.00% notes due 201 1,744 97.1700 3.5100% 5.000% 29 4.15% notes due 2043 1,260 101.1400 3.2800% 1.85% notes due 2020 4.150% 1,237 97.6400 4. 31 2.35% notes due 2022 1.850 1,232 2.350 98.5000 3.0900% 1.125% euro-denominated notes due 202 83 1.875% euro-denominated notes due 20 1.125% 96.9000 3.3900% 3.875% notes due 2021 1.875% 103.0500 0.90009 3.875% 106.6100 1.0100% 5 2.40% notes due 2022 2.400% 101.1200 3.3700% 36 6.50% notes due 2033 6.500 96.2900 3.4600% 7 0.50% euro-denominated notes due 2024 0.5009 0 4.2735% 8 1.375% euro-denominated notes due 203 98.8200 0.7000% 94.2000 1.7600% 39 2 50 2.50% euro-denominated notes due 2034 1.375% 2.500% 10 3.60% notes due 2042 3.600% 11.6900 1.67009 99.2500 3.6327% 41 6.55% notes due 2037 6.550% 2 5.75% notes due 2036 141 6800 4.337 116.5775 4 7940% 43 5.95% debentures due 2028 5.950 21.7100 4.3910% 44 5.85% notes due 2039 5.850% 119.4500 6.40% debentures due 2028 400 113.5100 5.3 Sheet1 Ready
