Wacc Cryo NV is an all equity firm involved in property and casualty insurance.
ID: 2661039 • Letter: W
Question
Wacc
Cryo NV is an all equity firm involved in property and casualty insurance. However, Cryo is about to issue a 10-year bond issued at par with a coupon of 8 per cent. Prior to the bond issue, the firm has a beta of 0.8 but recognizes that this will change once the firm moves to its new target debt -equity ratio of 0.25. The expected return on the euro stoxx 50 index is 13 per cent and treasury bills currently yield 3.4 per cent. what will be cryo NV's cost of debt, cost of equity and wacc once the bond is issued? the corporate tax rate is 23 per cent.
Explanation / Answer
cost of debt = 8*(1-0.23) =6.16%
cost of equity = 3.4+0.8*(13-3.4) = 11.08 %
WACC = (11.08+6.16)/2 = 8.62%
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