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Acort Industries has 10 million shares outstanding and a current share price of $40 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has annual coupons with a coupon rate of 10%, and has a $100 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Acort has EBIT of $106 million, which is expected to remain constant each year. New capital expenditures are expected to equal
- a. Based on this information, estimate Acort’s WACC.
- b. What is Acort’s equity cost of capital?
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- Acort Industries has 10 million shares outstanding and a current share price of $43 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 6%, and has a $111 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 3.6%. Acort has EBIT of $92 million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $20 million per year, while no changes to net working capital are expected in the future. The corporate tax rate is 26%, and Acort is expected to keep its debt-equity ratio constant in the future (by either issuing additional new debt or buying back some debt as time goes on). a. Based on this information, estimate Acort's WACC. b. What is Acort's equity cost of capital? a. Based on this information, estimate Acort's WACC. The WACC is%.…arrow_forwardLUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 1.34, the risk-free rate is 1.77 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?arrow_forwardFrostbite thermalwear has a zero coupon bond issue outstanding with a face value of 18,000 that matures in one year. The curent market value of the firm assets is 22,000. The standard deviation of the return on the firm assets is 51 percent per year, and the annual risk free rate is 7 percent per year, compounded continuously. what is the Market value of the firm's equity? What is the Market value of the firm's debt?arrow_forward
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