BHP Billiton, an Australian company, just paid $0.85 as a dividend, which isexpected to grow at 5.0 per cent. Its most recent stock price is $72. Further, thecompany has a debt issue outstanding with 23 years to maturity that is quoted at60 per cent of face value. The issue makes semiannual payments and has anembedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60and a 22 per cent corporate tax rate. This year, the company has an EBIT of $3.15million. Depreciation, the increase in net working capital, and capital spending were$265,000, $105,000, and $495,000, respectively. Therefore, you expect that overthe next five years, EBIT will grow at 15 per cent per year, depreciation and capitalspending will grow at 20 per cent per year, and NWC will grow at 10 per cent peryear. It also has $19.5 million in debt and 400,000 shares outstanding. After Year5, the adjusted cash flow from assets is expected to grow at 3.50 per centindefinitely. Answer the following five (5)What is the cost of equity (%)?What is the post-tax cost of debt (%)? |What is the WACC (%)?What is the value of the company ($)?What is the price per share ($)?

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Answered: BHP Billiton, an Australian company,…

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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BHP Billiton, an Australian company, just paid $0.85 as a dividend, which is expected to grow at 5.0 per cent. Its most recent stock price is $72. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 60 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 22 per cent corporate tax rate. This year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. Therefore, you expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely. Answer the…
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