Question
Samsung hired you as a consultant to help estimate its cost of capital (WACC). You have been provided with the following data: 1.Samsung currently has
Samsung hired you as a consultant to help estimate its cost of capital (WACC). You have been provided with the following data:
1.Samsung currently has one type of bond outstanding. The bond is marking semi-annual coupon payment. It has 20 years left until maturity and is carrying a7.25% coupon rate. It currently has a yield-to maturity of 8.57%. The bond has a book value of $40 million as indicated on the balance sheet.
2.A typical saving account at a bank is offering an interest rate of 1.5%, GIC is currently offering a return of 2.5% and a 25-year Government of Canada bond is currently yielding at 5.5%.
3.The beta of Samsung's stock is 1.25 and the expected return of the market index such as TSX composite index is 11.5%.
4.There is currently 10 million shares of Samsung stock trading publicly on the TSX stock exchange. Samsung is expected to pay a dividend of $1.2 per share nest year. The actual market price of Samsung ISconsidered undervalue because the actual return is 16% which is different than the expected return of the stock.
5.The tax rate associated with Samsung is 40%
What is the WACC of Samsung ?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started