If You Like You Can Use The Ytm On A Bond Issue That Is Not Callable As The Pre

I need help please …

If you like, you can use the YTM on a bond issue that is not callable as the pre-tax cost of debt for the company.

As you recall, the formula for WACC is:

rWACC = (E/E+D) rE + D/(E+D) rD (1-TC)

The formula for the required return on a given equity investment is:

ri= rf + βi * (RMkt-rf)

RMkt-rf is the Market Risk Premium. For this project, you may assume the Market Risk Premium is 5% unless you can develop a better number.

rf is the risk free rate. The risk free rate is normally the yield on US Treasury securities such as a 10-year treasury. For this assignment, please use 3.5%.

You may assume a corporate tax rate of 40%.

Conplete areport that contains the following elements:

·      Your calculated WACC.

·      How data was used to calculate WACC. This would be the formula and the formula with your values substituted.

·      Sources for your data.

·      A discussion of how much confidence you have in your answer. What were the limiting assumptions that you made, if any?

Include a Microsoft® Excel® file showing your WACC calculations discussed above.

Prof. Angela


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