You would like to determine the cost of capital for Enbridge, the company hoping to make the Northern Gateway Pipeline. Find the cost of each of the following components: a. Equity - in six years the dividend has increased from 0.74 to 1.35 per share. 1. What is the annual rate of growth? (2 marks) ii. Use your answer above and the fact that Enbridge is trading at $40.00 per share to calculate the cost of equity. (3 marks) b. Below is a quote of an Enbridge(use the bond with the longest maturity and the bid yield) bond. If the combined corporate tax rate in Ontario is 25% what is the cost of debt?( 4 marks) Issuer Full Name Currency Coupon Maturity offer ty Bid Ask Yield Price Type ENBRIDGE CAD 02/15/2024 155,000 4.15377 133.344 135.804 3.90756 CORPORATE PIPELINES INC ENBRIDGE INC 5.120 09/28/2040 1,000,000 4.94211 102.620 105.889 4.72969 CORPORATE Bid Ask Price Yield Rating 8.200 Am BOND CAD BOND C. Enbridge preferred shares trade for $24.10 and pay a dividend of $1.00 what is the cost of the preferred equity.(2 marks) d. If Enbridge has a capital structure of 40% common equity, 5% preferred equity and 55% debt what is their weighted average cost of capital (WACC)?(3 marks) e. Enbridge is promising 1.2 billion in increased tax revenue to BC. Further research finds that this is 40 million per year for 30 years. For any financial reporting purposes this amount should be reported as the present value of future payments. Use your answer to part d to find the actual benefit to BC from this annuity. (2 marks) I f. An economist is skeptical that anyone can predict benefits 30 years in the future. How could you adjust this analysis to take into account the increased risk? How would this change your answer in part e?(no calculations required)(2 marks) You would like to determine the cost of capital for Enbridge, the company hoping to make the Northern Gateway Pipeline. Find the cost of each of the following components: a. Equity - in six years the dividend has increased from 0.74 to 1.35 per share. 1. What is the annual rate of growth? (2 marks) ii. Use your answer above and the fact that Enbridge is trading at $40.00 per share to calculate the cost of equity. (3 marks) b. Below is a quote of an Enbridge(use the bond with the longest maturity and the bid yield) bond. If the combined corporate tax rate in Ontario is 25% what is the cost of debt?( 4 marks) Issuer Full Name Currency Coupon Maturity offer ty Bid Ask Yield Price Type ENBRIDGE CAD 02/15/2024 155,000 4.15377 133.344 135.804 3.90756 CORPORATE PIPELINES INC ENBRIDGE INC 5.120 09/28/2040 1,000,000 4.94211 102.620 105.889 4.72969 CORPORATE Bid Ask Price Yield Rating 8.200 Am BOND CAD BOND C. Enbridge preferred shares trade for $24.10 and pay a dividend of $1.00 what is the cost of the preferred equity.(2 marks) d. If Enbridge has a capital structure of 40% common equity, 5% preferred equity and 55% debt what is their weighted average cost of capital (WACC)?(3 marks) e. Enbridge is promising 1.2 billion in increased tax revenue to BC. Further research finds that this is 40 million per year for 30 years. For any financial reporting purposes this amount should be reported as the present value of future payments. Use your answer to part d to find the actual benefit to BC from this annuity. (2 marks) I f. An economist is skeptical that anyone can predict benefits 30 years in the future. How could you adjust this analysis to take into account the increased risk? How would this change your answer in part e?(no calculations required)(2 marks)
