Question: 1a Bonds Book Value Book Value Weight 1. $3 B 2. $1 B 3. $2 B 4. $2 B Weighted Average Cost of Debt (based

1a

Bonds

Book Value

Book Value Weight

1.

$3 B

2.

$1 B

3.

$2 B

4.

$2 B

Weighted Average Cost of Debt (based on book values)

Weighted Average Cost of Debt (based on market values)

Which is more appropriate?

1b

Weighted Average Cost of Capital (based on book values of debt and equity) show calculations

Weighted Average Cost of Capital (based on Market values of debt and equity) show calculations

Which is more relevant?

1c

Any potential problems with this pure play approach?

What improvements do you suggest to better reflect the WACC of SMI?

Book Value of Equity

$4,711,480

Stock Price

310.11

Market Value of Equity (market Capitalization)

52.119B

Number of Shares Outstanding

168.07M

Stock Beta

0.73

3-month T-bill rate

1.06

Cost of Equity

6.17%

Debt

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