The common stock of Buildwell Conservation & Construction, Inc., has a beta of .90. The Treasury bill

Question:

The common stock of Buildwell Conservation & Construction, Inc., has a beta of .90. The Treasury bill rate is 4%, and the market risk premium is estimated at 8%. BCCI's capital structure is 30% debt, paying a 5% interest rate, and 70% equity. What is BCCI's cost of equity capital? Its WACC? Buildwell pays tax at 40%.

You need to estimate the value of Buildwell Conservation. You have the following forecasts (in millions of dollars) of Buildwell's profits and of its future investments in new plant and working capital:

From year 5 onward, EBITDA, depreciation, and investment are expected to remain unchanged at year-4 levels. Estimate the company's total value and the separate values of its debt and
equity.
Beta............................0.90
Treasury bill rate............4%
Market risk premium......8%
Debt............................30%
Interest Rate..................5%
Equity...........................70%
Tax..............................40%

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...