Question

The following is information for Intel. Intel wants to pursue a new type of artificial intelligence (AI) chip that would be used in autonomous vehicles. They want to know what they should use for their WACC (weighted average cost of capital).

Preferred stock sells for $145 and pays an annual dividend of $13.25.

There are currently 20 year 5.1% coupon bonds that pay semi-annual payments and are non-callable available at a price of $1,016.79. The bond-yield risk premium is 4%.

The current risk free rate is 2.1% and the market risk premium is 8.3%. Intel’s common stock has a BETA of .49. It sells for a price of $58.82 per share and pays an annual dividend of $1.26. The dividend growth rate is expected to be 3% a year.

Intel has a target capital structure of 20% debt, 20% preferred stock and the rest is common equity.

Intel’s tax rate is 10%.

Further information:
The following is information for Intel. Intel wants to pursue a new type of artificial intelligence (AI) chip that would be used in autonomous vehicles. They want to know what they should use for their WACC (weighted average cost of capital).

Preferred stock sells for $145 and pays an annual dividend of $13.25.

There are currently 20 year 5.1% coupon bonds that pay semi-annual payments and are non-callable available at a price of $1,016.79. The bond-yield risk premium is 4%.

The current risk free rate is 2.1% and the market risk premium is 8.3%. Intel’s common stock has a BETA of .49. It sells for a price of $58.82 per share and pays an annual dividend of $1.26. The dividend growth rate is expected to be 3% a year.

Intel has a target capital structure of 20% debt, 20% preferred stock and the rest is common equity.

Intel’s tax rate is 10%.

The following is information for Intel. Intel wants to pursue a new type of artificial intelligence (AI) chip that would be used in autonomous vehicles. They want to know what they should use for their WACC (weighted average cost of capital).

Preferred stock sells for $145 and pays an annual dividend of $13.25.

There are currently 20 year 5.1% coupon bonds that pay semi-annual payments and are non-callable available at a price of $1,016.79. The bond-yield risk premium is 4%.

The current risk free rate is 2.1% and the market risk premium is 8.3%. Intel’s common stock has a BETA of .49. It sells for a price of $58.82 per share and pays an annual dividend of $1.26. The dividend growth rate is expected to be 3% a year.

Intel has a target capital structure of 20% debt, 20% preferred stock and the rest is common equity.

Intel’s tax rate is 10%.

Further Information:
Intel's after tax cost of Debt = 4.47%
Intels cost of preferred stock = 9.14%
Intel's cost of common equity using CAPM method = 6.17%
Intels cost of common equity using DCF method = 5.21%
Intels cost of common equity using bond yield plus risk premium method = 8.97%

Question: Using the information provided about Intel to answer this question. What is intels cost of weighted average cost of capital ?

A. 6.11%
B. 6.79%
C. 8.22%
D. 10.22%

Note: Please show calculations and answer must match above given choices.

Answer 1

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