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Concept explainers
QUESTION:
Find WACC (discount rate)
Additional Info:
Analysts expect the firm’s revenues, earnings, capital expenditures, and
The depreciation expense for 2019 is $5.182 billion.
Capital spending is expected to offset depreciation in the stable state period.
The yield on 30-year treasury bonds is 2% and the equity market risk premium is 6.2%.
The shares outstanding as of 12/31/2019 were 3,516,000,000 and the stock price was $60 per share.
The average price of the company’s long-term corporate Bonds was 123.95 with an average yield to maturity of 4.16%. The company’s long-term bonds have a bond rating of AA.
Shares Outstanding | 3,516,000,000 |
Stock Price | $60 |
Yield (30Y Treasury) | 2% |
Equity Market Risk Prem. | 6.2% |
Avg. Price LT Corp. Bond | 123.95 |
Avg. YTM | 4.16% |
Depreciation Expense (2019) | 5,182,000,000 |
Current Stock Price | 54.58 |
Beta | 0.44 |
Shares Outstanding | 3,516,000,000 |
Estimated Growth Rate in Earnings (2Y) | 9.9 |
Equity Market Risk Prem. | 6.2% |


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Calculation of WACC is shown below:
Hence, WACC is 4.73%
Step by stepSolved in 2 steps with 2 images
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- The real risk-free rate of interest is 1.57% at the beginning of 2021. Inflation is expected to be 2% in 2021, jump to 4.00% in 2022, and run at 3% in 2023. A maturity risk premium is expected to be 0.37% per year to maturity. A liquidity premium on corporate bonds issued by small companies will continue to be 0.50%, regardless of their maturities. What should the interest rate on a 3-year Treasury security be at the beginning of 2021? Group of answer choices 5.85% 5.31% 5.54% 6.18% 5.68%arrow_forwardSuppose today that you have the following information: yield on 10-year TIPS: 3.5% yield on 10-year Treasury note: 3.0% What is the expected annual rate of inflation (approximate) over the next 10 years?arrow_forwardBased on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R₁ = 0.55% R1 E(21) = 1.70% = 42 = 0.08% E(31) 1.80% 43 = L4= 0.12% 0.14% = E(41) 2.10% Using the liquidity premium theory, determine the current (long-term) rates. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Current (Long-term) Rates Years 1 % 2 % 3 % 4 5 %arrow_forward
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- Bhupatbhaiarrow_forwardok Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 1.00% = 2.15% 2.25% = 2.55% E(21) E(31) = E(471) 42 = L3 = L4 = Using the liquidity premium theory, determine the current (long-term) rates. 0.05% 0.10% 0.12% nel plecor (in 01234 should be enteredarrow_forward
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