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A) How would the abnormal earnings calculations in Table 8-5 change if the cost of equity assumption is changed to 12%?

B) What will Wal-Mart's cost of equity be if the equity market risk premium is 5 percent?

C) Let's change the problem a little and calculate the weighted average cost of capital (WACC):

Assume that Wal-Mart changes its capital structure so that its market value weight of debt to capital increases to 20%, and its after-tax interest rate on debt at this new leverage level is 4%. Assume that the equity market risk premium is 7%. What will be the cost of equity at the new debt level? What will be the weighted average cost of capital?

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9274318

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