You are trying to determine the WACC for White Sox. It has the following characteristics. (12...

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You are trying to determine the WACC for White Sox. It has thefollowing characteristics. (12 points)
Discount rate of 10%. The company had pre-tax netincome of $50mm last year and paid taxes of $10mm.
White Sox has $900mm of total liabilities, $100mm of accountspayable, and $650mm of debt.
The company has 120mm shares authorized, 17mm shares issued,and 7mm shares of treasury stock. The stock traded at$65 per share two years ago and now trades at $97.87 pershare.
A 10-year senior bond was issued 1 year ago. It is priced at 97today. The coupon rate is 6% paid semi-annually. Use the YTM onthis bond as a proxy for the pre-tax cost of total debt.
The company pays a dividend of $.75 per share per quarter.Twelve years ago, the dividend was $0.30 per share. The ten-yeartreasury rate is 2%. The company’s Beta is 1.5 and the marketreturn for equities is 8%.
Cost of Equity – CAPM
Cost of Equity – Gordon Growth
Pre-tax cost of debt
After-tax cost of debt
Total Capital
WACC (use average of CAPM and GGM for cost ofequity)

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3.7 Ratings (455 Votes)

i Cost of equity using capm Rf Beta Rm Rf Here Rf risk free rate 2 or 002 Rm market return 8 or 008 Beta 15 Now Cost of equity 002 15 008 002 Cost of equity 002 009 Cost of equity 011 or 11 ii Cost of equity Gordon growth model D1 P g Here P Price 9787 a g growth rate End value dividend Start value dividend1n 1 n 12 years g 075 030112 1 g 25112 1 g 10794 refer note 1 g 00794 or 794 b D1 Expected dividend See Answer

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You are trying to determine the WACC for White Sox. It has thefollowing characteristics. (12 points)Discount rate of 10%. The company had pre-tax netincome of $50mm last year and paid taxes of $10mm.White Sox has $900mm of total liabilities, $100mm of accountspayable, and $650mm of debt.The company has 120mm shares authorized, 17mm shares issued,and 7mm shares of treasury stock. The stock traded at$65 per share two years ago and now trades at $97.87 pershare.A 10-year senior bond was issued 1 year ago. It is priced at 97today. The coupon rate is 6% paid semi-annually. Use the YTM onthis bond as a proxy for the pre-tax cost of total debt.The company pays a dividend of $.75 per share per quarter.Twelve years ago, the dividend was $0.30 per share. The ten-yeartreasury rate is 2%. The company’s Beta is 1.5 and the marketreturn for equities is 8%.Cost of Equity – CAPMCost of Equity – Gordon GrowthPre-tax cost of debtAfter-tax cost of debtTotal CapitalWACC (use average of CAPM and GGM for cost ofequity)

Cost of Equity – CAPM
Cost of Equity – Gordon Growth
Pre-tax cost of debt
After-tax cost of debt
Total Capital
WACC (use average of CAPM and GGM for cost ofequity)