Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134475561
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
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Chapter 13, Problem 4CQ
Summary Introduction

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 debt of HT Company.

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Chapter 13 Solutions

Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)

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What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY