You are a manager for Humana Inc., and you are trying to determine the appropria
ID: 2788281 • Letter: Y
Question
You are a manager for Humana Inc., and you are trying to determine the appropriate discount rate to use in valuations of average risk project proposals for the company You have the following information: YTM on 10-year Treasury bill. 2.359% Beta on common stock: 0.58 Expected return on market portfolio: 8.5% Additionally, you collected the following Information from Humana's most recent annual financial disclosure and market prices on current bond issues Bond Issue Coupon Rate Total Book Value in millions) Market Price Quote per bond) YTM 7200% 500 104 2.240% $500 million, 7.20% due June 15. $300 million, 6.30% due August 1. $400 million, 2.625% due $600 million, 3.15% due $600 million, 3.85% due October 6300% 300 2.420% 2.625% 400 3.700% r1, 2019 3.150% 600 2.480% 1, 2022 3.850% 600 3.230% 2024 250 million, 815% due June 15, 8.150% 250 5.750% 2038 $400 million, 4.625% due 4.625% 400 99.65 4.650% 1, 2042 750 million, 495% due October 2044 4 950% 100 4950% The market price for one share of common stock is $255.27, and there are 146.280 million shares outstanding. What is Humana's debt to equity (DF ratio? Enter your answer as a decima rounding to the nearest ten thousandth For example, write .1 23%" as 0123"Explanation / Answer
Debt equity ratio = market value of debt/market value of equity.
Computation of market value of debt:
Totak market value of equity = 146.280 million shares*$255.27 per share = $37,340.90 million
Thus debt equity ratio = $3,940.87 million/37,340.90 million
= 10.55% or 0.106
Book value of bond Market price quote Market value of bond 500.00 104.00 520.00 300.00 101.00 303.00 400.00 98.00 392.00 600.00 103.12 618.72 600.00 98.00 588.00 250.00 148.22 370.55 400.00 99.65 398.60 750.00 100.00 750.00 Total 3,940.87Related Questions
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