There are two companies (Heart and Apt). Here is financial data from the past year. All dollar amounts for sales, total assets and net income are in millions. The risk free rate (UST securities) = 4%. Heart Apts Sales $ 9,350 $ 8,930 Net Income $ 902 $ 1,460 ROA 8.8% 7.6% ROE 30.2% 13.96% Current ratio 1.88x 2.17x Shares outstanding 238m 219m Beta 2.58 0.98 Stock price $18.79/sh. $159.00/sh. P/E ratio 4.97 23.9 (S&P 500 is 17) Earnings per share $3.79 $6.65 Total Assets $10,244 $19,178 For both companies the marginal tax rate is 30%. The market is expected to grow at a rate of 10%. Current bonds for both companies have a YTM of 10%. The CAPM is how both companies calculate the required return on common equity. Calculate the WACC for Heart. It has a targeted capital structure of 40% debt and 60% equity. Ignore flotation costs. Calculate the WACC for Apt. It has a targeted capital structure of 25% debt and 75% equity. Ignore flotation costs.
There are two companies (Heart and Apt). Here is financial data from the past year. All dollar amounts for sales, total assets and net income are in millions. The risk free rate (UST securities) = 4%.
Heart Apts
Sales $ 9,350 $ 8,930
Net Income $ 902 $ 1,460
ROE 30.2% 13.96%
Current ratio 1.88x 2.17x
Shares outstanding 238m 219m
Beta 2.58 0.98
Stock price $18.79/sh. $159.00/sh.
P/E ratio 4.97 23.9 (S&P 500 is 17)
Earnings per share $3.79 $6.65
Total Assets $10,244 $19,178
- For both companies the marginal tax rate is 30%. The market is expected to grow at a rate of 10%. Current bonds for both companies have a YTM of 10%. The CAPM is how both companies calculate the required
return on common equity. - Calculate the WACC for Heart. It has a targeted capital structure of 40% debt and 60% equity. Ignore flotation costs.
- Calculate the WACC for Apt. It has a targeted capital structure of 25% debt and 75% equity. Ignore flotation costs.
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