Acort Industries has 11 million shares outstanding and a current share price of $38 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 9%, and has a $115 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 5.4%. Acort has EBIT of $93 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $19 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 23%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on). a. Based on this information, estimate Acort's WACC. b. What is Acort's equity cost of capital? a. Based on this information, estimate Acort's WACC. The WACC is%. (Round to two decimal places.)
Acort Industries has 11 million shares outstanding and a current share price of $38 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 9%, and has a $115 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 5.4%. Acort has EBIT of $93 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $19 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 23%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on). a. Based on this information, estimate Acort's WACC. b. What is Acort's equity cost of capital? a. Based on this information, estimate Acort's WACC. The WACC is%. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Acort Industries has 11 million shares outstanding and a current share price of $38 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 9%, and has a $115 million face value. The first of the
remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 5.4%. Acort has EBIT of $93 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal
$19 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 23%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on).
a. Based on this information, estimate Acort's WACC.
b. What is Acort's equity cost of capital?
a. Based on this information, estimate Acort's WACC.
The WACC is%. (Round to two decimal places.)
C
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