Assume that the limited company currently has 774 million shares traded on the stock exchange at a
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Question:
Assume that the limited company currently has 774 million shares traded on the stock exchange at a share price of 17.80. Assume that the company pays 4.95% interest on its bond loans, which amount to a total of 6428 billion and that company's total liabilities amount to 35, 654 billion. Assume further that the market risk premium is 7%, the risk-free interest rate is 0.6% and company beta is 1.08 and that the company pays 36% in tax.
a) Use CAPM and calculate ABB's cost of equity (show calculation)
b) Use WACC and calculate ABB's cost for average capital cost (show calculation)
c) Explain briefly (max. 10 lines) what distinguishes CAPM and WACC.
Expert Answer:
a As per the CAPM Re Rf BetaRm Rf Thus Re 06 108 7 Thus Re 816 Thus as per CAPM the cost of equity i... View the full answer
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