60.1K

Verified Solution

Link Copied!

Font Clipboard Alignment 2 Undo H48 VVfx A B C D E 21 calculations, assume that each division has the same capital structure and cost of debt as GE. 22 23 24 25 INPUTS USED IN THE MODEL 26 27 Company Data 28 Common Stock: 29 Current Price of Common Stock $92.86 30 Beta 1.13 31 Common Stock Dividend, recently paid $1.00 32 Earnings per share, recent $6.25 33 ROE 4.725% 34 Company risk premium 2.0% 35 Debt: 36 Pre-tax cost of debt 3.3696 37 Tax rate 26% 38 Capital Structure: 39 Target capital structure for common stock 75% 40 Target capital structure for debt 25% 41 42 Market Data 43 90-day Treasury Bill Rate 0.35% 44 10-year Treasury Bond Rate 1.92% 45 Expected Market Dividend $61 46 Current Market Index Value $4,287 47 Expected long term US GDP growth rate 3.6% 48 OHT HWS- WACC AutoSave View Help Data Review Insert Draw Page Layout Formulas Genie File Home A A 10 2 Wrap Text Merge & Center $ Calibri v [D Paste BIU Alignment Font Undo Clipboard S E H48 D x fx B Expected long-term US GDP growth rate 3.6% 47 48 49 50 1. Estimate General Electric's Weighted Average cost of Capital 51 52 Equity (Market) Risk Premium 53 Expected Market Return 54 less Risk-free Rate 55 equals Equity Risk Premium 56 57 Cost of Debt and Common Equity 58 After-tax Cost of Debt 59 Cost of Common Equity using CAPM 60 61 Cost of Capital (WACC) 62 WACC 63 84 65 2. Estimate GE's divisional cost of equity and divisional cost of capital 66 67 68 Division Weight Divisional Beta (measured as % of 69 GE's total Sales) 70 Healthcare 4596 1.06 71 Aviation 44% 1.28 72 Power Generation 11% 0.83 73 Divisional Cost Divisional Cost of Equity of Capital Build a Model + Font Clipboard Alignment 2 Undo H48 VVfx A B C D E 21 calculations, assume that each division has the same capital structure and cost of debt as GE. 22 23 24 25 INPUTS USED IN THE MODEL 26 27 Company Data 28 Common Stock: 29 Current Price of Common Stock $92.86 30 Beta 1.13 31 Common Stock Dividend, recently paid $1.00 32 Earnings per share, recent $6.25 33 ROE 4.725% 34 Company risk premium 2.0% 35 Debt: 36 Pre-tax cost of debt 3.3696 37 Tax rate 26% 38 Capital Structure: 39 Target capital structure for common stock 75% 40 Target capital structure for debt 25% 41 42 Market Data 43 90-day Treasury Bill Rate 0.35% 44 10-year Treasury Bond Rate 1.92% 45 Expected Market Dividend $61 46 Current Market Index Value $4,287 47 Expected long term US GDP growth rate 3.6% 48 OHT HWS- WACC AutoSave View Help Data Review Insert Draw Page Layout Formulas Genie File Home A A 10 2 Wrap Text Merge & Center $ Calibri v [D Paste BIU Alignment Font Undo Clipboard S E H48 D x fx B Expected long-term US GDP growth rate 3.6% 47 48 49 50 1. Estimate General Electric's Weighted Average cost of Capital 51 52 Equity (Market) Risk Premium 53 Expected Market Return 54 less Risk-free Rate 55 equals Equity Risk Premium 56 57 Cost of Debt and Common Equity 58 After-tax Cost of Debt 59 Cost of Common Equity using CAPM 60 61 Cost of Capital (WACC) 62 WACC 63 84 65 2. Estimate GE's divisional cost of equity and divisional cost of capital 66 67 68 Division Weight Divisional Beta (measured as % of 69 GE's total Sales) 70 Healthcare 4596 1.06 71 Aviation 44% 1.28 72 Power Generation 11% 0.83 73 Divisional Cost Divisional Cost of Equity of Capital Build a Model +

Answer & Explanation Solved by verified expert

See Answer