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Alaine Brown is an equity analyst at RBC capital market. She has been conducting research...

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Finance

Alaine Brown is an equity analyst at RBC capital market. She has been conducting research on energy sector. She was recently requested by her manager to write an equity report about Suncor Energy (SU.TO), a leading Canadian energy firm. She intended to use the discounted cash flow approach to estimate the firm value. As a result, she needed to first estimate the firms cost of capital. She collected the following information about Suncor:

Suncor

Price Per Share

$31.96

Market capitalization (billions)

47.34

Book Value of Equity (billions)

35.76

Book Value of Debt (billions)

18.81

Beta

1.96

Credit Rating

A-

Suncor 10-year Bond Yield to Maturity

1.55%

10-year Government Bond Yield

1.5%

Market Risk Premium

10%

Suncor Marginal Tax Rate

30%

  1. Based on the above information, can you help Alaine to estimate Suncors cost of equity?

  1. What is Suncors current after tax cost of debt?

  1. What is the your estimation of Suncors WACC (assuming that the market value of debt is equal to book value of debt)?

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