Question
The marginal tax rate ( T C ) is 40% and the market risk premium is 5%. The current 30-year U.S. Treasury bond yield is
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%
current stock price: 44.11
outstanding shares (million): 2950.6
total debt (million) : 101845
cash(million) : 22337
enterprise value (million) : 209659
1. What is the prevailing consolidated debt-to-value ratio based on the table above?
2. Derive an estimate of rE based on the target consolidated debt-to-value ratio using the CAPM. Use the 30-year U.S. Treasury bond yield as rf. E = 1.25 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 = 1.25 and then relever
3. Based on its credit rating, Aspens spread over 30-year Treasuries is 1.62%. What is your estimate of rD? Use the Treasury spread approach.
4. Derive an estimate of rWACC based on the target consolidated debt-to-value ratio.
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