1) Time Warner shares have a market capitalization of $55 billion. The company j
ID: 2707724 • Letter: 1
Question
1) Time Warner shares have a market capitalization of $55 billion. The company just paid a dividend of $0.35 per share and each share trades for $35. The growth rate in dividends is expected to be 6.5% per year. Also, Time Warner has $20 billion of debt that trades with a yield to maturity of 7%. If the firm's tax rate is 30%, compute the WACC?
A) 6.81% B) 6.85% C) 7.45% D) 7.93% E) 8.19%
2) The market value of Fords equity, preferred stock and debt are $7 million, $3 billion, and $10 billion, respectively. Ford has a beta of 1.8, the market risk premium is 7%, and the risk-free rate of interest is 4%. Ford's preferred stock pays a dividend of $3.5 each year and trade at a price of $27 per share. Ford's debt trades with a yield to maturity of 9.5%. What is Ford's weighted average cost of capital if its tax rate is 30%?
A) 10.12% B) 10.34% C) 10.08% D) 11.47% E) 11.83%
Explanation / Answer
Answer to 1. is B0 6.85%
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