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 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 r_E based on the target consolidated debt-to-value ratio using the CAPM. Use the 30-year U.S. Treasury bond yield as r_f. _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 r_D? Use the Treasury spread approach.

4. Derive an estimate of r_WACC based on the target consolidated debt-to-value ratio.