BHP Billiton, An Australian company's stock, just paid $0.85 as a divident, which is expected to grow at 5.0 per cent. Its most recent stock price is $82. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 105 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 30 per cent corporate tax rate. In 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. 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 $19.5 million in debt and 400,000 shares outstanding. After Year-5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely. Answer the following five (5) questions based on the above information and enter only the number as an answer, for example, 1234.56. 1.What is the cost of equity (%)? 2.What is the cost of debt (%)? 3.What is the WACC (%)? 4.What is the value of the company value ($)? 5.What is the price per share ($)?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
BHP Billiton, An Australian company's stock, just paid $0.85 as a divident, which is expected to grow at 5.0 per cent. Its most recent stock price is $82. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 105 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 30 per cent corporate tax rate. In this year, the company has an EBIT of $3.15 million.
Answer the following five (5) questions based on the above information and enter only the number as an answer, for example, 1234.56.
1.What is the
2.What is the cost of debt (%)?
3.What is the WACC (%)?
4.What is the value of the company value ($)?
5.What is the price per share ($)?
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