Question

Acort Industries has

14

million shares outstanding and a current share price of

$ 46

per share. It also has​ long-term debt outstanding. This debt is risk​ free, is four years away from​ maturity, has an annual coupon rate of

8 %

​,

and has a

$ 108

million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at

4.8 %.

Acort has EBIT of

$ 107

​million, which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal

$ 20

million per​ year, while no changes to net working capital are expected in the future. The corporate tax rate is

35 % and Acort is expected to keep its​ debt-equity ratio constant in the future​ (by either issuing additional new debt or buying back some debt as time goes​ on).

a. Based on this​ information, estimate​ Acort's WACC.

b. What is​ Acort's equity cost of​ capital?

a. Based on this​ information, estimate​ Acort's WACC.

The WACC is

nothing

​%.

​ (Round to two decimal​ places.)

b. What is​ Acort's equity cost of​ capital?

The equity cost of capital is nothing

​%(Round to two decimal​ places.)

Answer 1