Case information: An individual works for HT Company, manufacturer of high-pressure industrial water pumps. The company specializes in natural disaster services. The individual reports directly to the CFO of the company. The boss has asked him to calculate HT Company’s WACC for the preparation of an executive treat. The individual is not invited as was water pumps and skiing are on the agenda in S. Valley. Fortunately, there’s an analyst to gather the information for him. The risk-free rate of interest, the yield of 10-year government bond is 3%. The company’s market capitalization is $100; CAPM beta is 1.2; total book value of debt outstanding is $50 million; cash is $10 million. The cost of debt is 5% (calculated using the quoted yields on the company’s outstanding bond issues). To determine: The cost of equity of the company using the CAPM.

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Chapter 13, Problem 3CQ

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Case information:

An individual works for HT Company, manufacturer of high-pressure industrial water pumps. The company specializes in natural disaster services. The individual reports directly to the CFO of the company. The boss has asked him to calculate HT Company’s WACC for the preparation of an executive treat. The individual is not invited as was water pumps and skiing are on the agenda in S. Valley. Fortunately, there’s an analyst to gather the information for him.

The risk-free rate of interest, the yield of 10-year government bond is 3%.

The company’s market capitalization is $100; CAPM beta is 1.2; total book value of debt outstanding is $50 million; cash is $10 million.

The cost of debt is 5% (calculated using the quoted yields on the company’s outstanding bond issues).

To determine:

The cost of equity of the company using the CAPM.

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