Question: For this WACC example, how did they get 1.10 in the D section??? Equity Information - 50 million shares - $80 per share - Beta

For this WACC example, how did they get 1.10 in the D section???

Equity Information - 50 million shares - $80 per share - Beta = 1.15 - Market risk premium = 9 % - Risk Free Rate = 5% Debt Information - $1 billion in outstanding debt (face value) - Current Quote = 110 - Coupon Rate = 9%, semiannual coupons - 15 years to maturity Tax Rate = 40% cost of equity Re = 5 + 1.15(9) = 15.35% cost of debt N = 30; PV = -1,100; PMT = 45; FV = 1,000; CPT I/Y = 3.9268 Rd = 3.927(2) = 7.854% after-tax cost of debt Rd( 1-Tc) = 7.854 (1-.4) = 4.712% capital structure weights E = 50 million (80) = 4 billion D = 1 billion (1.10) = 1.1 billion <---that part that is bolded.. the (1.10)... thank you V = 4 + 1.1 = 5.1 billion We = E/V = 4/5.1 = .7843 Wd = D/V = 1.1/5.1 = .2157 WACC - WACC = .7843(15.35%) + .2157(4.712%) = 13.06%

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