Acort Industries has 5 million shares outstanding and a current share price of $41 per share. It also hasâ long-term debt outstanding. This debt is riskâ free, is four years away fromâ maturity, has an annual coupon rate of 10%â, and has a $112 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Acort has EBIT of $108 âmillion, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $18 million perâ year, while no changes to net working capital are expected in the future. The corporate tax rate is 35%â, and Acort is expected to keep itsâ debt-equity ratio constant in the futureâ (by either issuing additional new debt or buying back some debt as time goesâ on).
a. Based on thisâ information, estimateâ Acort's WACC. The WACC is _______â%. â (Round to two decimalâ places.)
b. What isâ Acort's equity cost ofâ capital? The equity cost of capital is _______gâ%.âââ(Round to two decimalâ places.)
Acort Industries has 5 million shares outstanding and a current share price of $41 per share. It also hasâ long-term debt outstanding. This debt is riskâ free, is four years away fromâ maturity, has an annual coupon rate of 10%â, and has a $112 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Acort has EBIT of $108 âmillion, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $18 million perâ year, while no changes to net working capital are expected in the future. The corporate tax rate is 35%â, and Acort is expected to keep itsâ debt-equity ratio constant in the futureâ (by either issuing additional new debt or buying back some debt as time goesâ on).
a. Based on thisâ information, estimateâ Acort's WACC. The WACC is _______â%. â (Round to two decimalâ places.)
b. What isâ Acort's equity cost ofâ capital? The equity cost of capital is _______gâ%.âââ(Round to two decimalâ places.)
