Part I: WACC

*Set up in Excel*

Suppose Intel wants to raise capital to start a new project to bring their manufacturing process back to the U.S. The pandemic has shown them that they cannot rely on a foreign supplier. The CEO asks you to calculate their weighted average cost of capital. He gives you these facts.

Tax rate = 21.5%.

Intel has the following bonds all have a face value of $1,000:

5-year, 4.6% coupon, semiannual payment non-callable bonds with a price of $1,016.

20 year, 6.2% coupon semiannual payment callable bonds with a price of $1,035.

And 20 year, 5.7 % coupon semiannual payment non-callable bonds with a price of $1,048. New bonds will be privately placed with no flotation cost.

Intel has preferred stock that sells for $138.00. It pays an annual dividend of $5.65.

Their common stock sells for $124.34. The annual dividend is $1.05 and the dividend growth rate is 4.5% a year. The stock has a Beta of .67. The risk free rate is 1 % and the market risk premium is 7.8%.

Intel considers their bond-Yield Risk Premium to be 3.2%.

Intel currently has 35% of their capital coming from debt, 15% from preferred stock and the 50%

from common equity, however their target is to have 30% from debt, 10% from preferred stock and the rest from common equity.