Exam 12: Determining the Cost of Capital

Bell Media has common stock trading at a price of $74,and a market capitalization of $23 billion.The firm also has preferred stock worth a total of $6 billion,currently trading at $54 per share and paying a dividend of $4.50 per share.The firm's beta is 1.2,the risk-free rate is 2.4%,and the market risk premium is 6%.The firm has $28 billion of debt with a yield to maturity of 4%.If the firm's tax rate is 30%,what is Bell's WACC?

An all-equity firm produced a dividend flow of $20,000 last year.The market value of the firm is $650,000 and the dividend is expected to increase at 4% each year.What is the cost of equity capital for this firm?

Timbuktu Corp has a market value of debt of $2.5 billion,and a market value of equity of $1.5 billion.What weights should Timbuktu use for debt and equity in calculating its WACC?

Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital.Its current capital structure has a 30% weight in equity,10% in preferred stock,and 60% in debt.The cost of equity capital is 17%,the cost of preferred stock is 11%,and the pretax cost of debt is 8%.What is the weighted average cost of capital for Ford if its marginal tax rate is 30%?

An all-equity firm produced a dividend flow of $30,000 last year.The market value of the firm is $875,000 and the dividend is expected to increase at 3% each year.What is the cost of equity capital for this firm?

What is the assumption about leverage when using WACC to evaluate a project?

The total market value of General Motors (GM)is $10 billion.GM has a market value of $7 billion of equity and a face value of $10 billion of debt.What are the weights in equity and debt that are used for calculating the WACC?