After owning Time Warner for a few years, AT&T isconsidering selling it and concentrate on providing telecomservices, which was its core business before acquiring Time Warner.AT&T beta before buying Time Warner was 0.45 and the beta ofTime Warner was 1.2. Currently, AT&T can borrow long-term at3.1% and short-term at 2.4%. Assume that the AT&T financedepartment applies a market risk premium of 5.50% in estimating thecost of equity, the current rate on 10-year Treasury Note is 1.75%and AT&T marginal tax rate is 25%. If after divesting the TimeWarner AT&T is expected to maintain a capital structure of 55%equity and 45% debt, what discount rate (WACC) should AT&Tapply to calculate the NPV of its future projects? Enter youranswer in decimals, e.g. 4.45% as 0.0445

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC for ATT after divesting Time Warner we need t... View the full answer