Disney Company Beta 0.95 Expected return of the market 10.36% Risk free rate 3.14% Tax rate...
Disney Company
Beta 0.95
Expected return of the market 10.36%
Risk free rate 3.14%
Tax rate 12.02%
Pre-tax cost of debt 3.07%
Equity 157215
Preferred equity 0
Short-term debt 5992
Long-term debt 17681
Total Capital 180888
Fed Rate Increase.
An increase in Federal Reserve interest rate by 200
basis points (2.0%) lifts the borrowing costs of every debt issuer. What
is Disney’s adjusted WACC?
Homework Answers
Beta = 0.95, Market Return = 10.36 % and Risk-Free Rate = 3.14 %
Cost of Equity = ke = 3.14 + 0.95 x (10.36 - 3.14) = 9.999 %
Pre-Tax Cost of Debt = 3.07 % and Increase in Issuer Rate owing to Fed Rate increase = 2 %
Adjusted Pre-Tax Cost of Debt = 3.07 + 2 = 5.07 %
Equity = 157215, Short-Term Debt = 5992 and Long-Term Debt = 17681
Total Debt = 5992 + 17681 = 23673
Equity Proportion = [157215 / (157215 + 23673)] = 0.86913 and Debt Proportion = 1-0.86913 = 0.13087
Tax Rate = 12.02 %
Adjusted WACC = (1-Tax Rate) x 5.07 x 0.13087 + 9.999 x 0.86913 = 9.27418 % ~ 9.27 %
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