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%. (Round to two decimal places.)
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%. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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%. (Round to two decimal places.)
Transcribed Image Text: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%. (Round to two decimal places.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education