Need help understanding the attached practice question. Step by step instructions to help me understand the process would be most helpful, many thanks!
Copy of Final Exam, 2018FA (v4) - Excel ile Insert Page Layout Formulas Data Review View Help Tell me what you want to do o Cut Calibri 20 Wrap Text General Normal Bad Copy Format Painter Merge & Center 68 98 Conditional Format as Check Cell Explanat Formatting Table Clipboard Font Alignment Number 56 QUESTION 5: 50 points (point distribution shown for each component) After completing your graduate degree, you decide to take a job at Merck & Company (MRK), a well-known pharmaceutical company. Part of your job is to complete business case analyses for different drugs under development. One day, you are assigned to complete an analysis on a drug that has, so far, shown great promise for treating pancreatic cancer. After completing your revenue forecast under the assumption that the drug passes its next 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. 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 (5 points) 1 Cost of debt (pre-tax) (25 points) 2 Weight of equity (5 points) 3 Weight of debt (5 points) 4 WACC (10 points) 17 MRK common stock beta: 9 0 18 YTM on 10-year US Treasury bond: 3.12 19 Average annual return on Vanguard Total Market Fund: 10.55% 20 Current MRK price per common share: 73.81 21 Number of MRK common shares outstanding (in millions) 2,678 22 Corporate tax rate: 21% 23 24 The company has the following long-term debt outstanding. (Assume this is the only debt the firm has. YTM 26 Bond issue Coupon Rate Book Value Market Price Quote (in millions S) (per bond) 27 2.75% notes due 2025 2.750% 2,488 94.8400 5.7100% 28 3.70% notes due 2045 8.700% 1,973 90.9900 4.3200% 29 2.80% notes due 2023 2.800% 1,744 97.1700 3.5100% 50 5.00% notes due 201 5.0009 101.1400 3.2800% 4.15% notes due 204 4.150% 1,237 97.6400 4.3500% 32 1.85% notes due 2020 1.8509% 1,232 98.5000 3.0900% 83 2.35% notes due 2022 2.350% 1,220 96.9000 3.3900% 34 1.125% euro-denominated notes due 202: 1.125% 1,185 103.0500 0.9000% 35 1.875% euro-denominated notes due 2026 1.875% 36 3.875% notes due 2021 3.875% 1,17 106.6100 1.0100% 101 1200 3.3700% 2.40% notes due 2022 2.4009 96.2900 38 6.50% notes due 2033 6.5009% 138.4460 4.2735% 39 0.50% euro-denominated notes due 2024 0.500% 98.8200 0.7000% 1.375% euro-denominated notes due 203 1.3759 94.2000 1.7600% 1 2.50% euro-denominated notes due 2034 2.500% 111.6900 1.6700% 12 3.60% notes due 2042 3.600 99.2500 3.6327% 43 6.55% notes due 2037 6.5509 141.6800 4.3373% 44 5.75% notes due 2036 5.7509 116.5775 4.7940% 15 5.95% debentures due 2028 5.950% 21.7100 4.3910% 5.85% notes due 2039 .850 119.4500 4.7831% 7 6.40% debentures due 2028 6.400% 250 34 48 6.30% debentures due 2026 135 113.5100 6.3009 114.1305 5.0833% 49 Integrity #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 BONUS Ready
