Kakuzu Inc. is currently estimating its cost of capital given the following information: - Debt of the
Question:
Kakuzu Inc. is currently estimating its cost of capital given the following information:
- Debt of the Company is currently at Php500,000 based on accounting records and is valued at Php750,000
- The Company's 100,000 issued shares currently trade at Php10.00 per share
- Current government risk-free rate is estimated at 4.5%
- Applicable tax rate is at 30%
- Kakuzu's current credit spread stands at 3.5%
- Based on independent expert's assessment, the Company's beta is estimated at 1.5
- Equity risk premium is estimated at 4.5%
Required:
1. How much is the WACC?
2. How much is the cost of debt?
3. How much is the market risk premium?
4. How much is the WACC assuming that interest expense is not deductible expense for tax purposes?
5. How much is the cost of equity?
Basic Finance An Introduction to Financial Institutions Investments and Management
ISBN: 978-1111820633
10th edition
Authors: Herbert B. Mayo