Question

Cowbell Corp. is a manufacturer of musical instruments. There are 52 million shares, each selling at $80 / share with an equity beta of 0.93. The risk-free rate is 5% and the market risk premium is 9%. There is $1.17 billion in outstanding debt (face value), paying a 9% s/a coupon for 15 years, which is currently quoted at 110% of par. Assuming a 40% tax rate, what is Cowbell Corp.’s WACC?

Answer 1

Cost of Equity Rf+beta*(Rm-Rf) 0.05+0.93*(0.09) 0.1337 13.37% Coupon nper pmt PV 30 15*2 45.00 1000*9%*1/2 $ (1,100.00) 1000*110% 1,000.00 RATE(30,45,-1100,1000) 3.927% 3.927%*2 7.854% Rate YTM Market value weight $ 1,100.00 0.209 product 0.047121912 0.0099 Debt 1000Millions 110% After tax cost of debt 0.07854*(1-0.40) 0.047121912 Equity 52Million*80 0.1337 $ $ 4,160.00 5,260.00 0.791 WACC WACC 0.1057 0.1156 11.56%)