Question

# Using information below, calculate the "domestic" cost of equity for AK Corporation:              U.S....

Using information below, calculate the "domestic" cost of equity for AK Corporation:

U.S. Treasury Yield   3.24%
Average Return of the U.S. Stock Market   9.40%
Average Return of the Global Stock Market   10.79%
Beta Coefficient of AKC vs S&P 500   0.84
Beta Coefficient of AKC vs Global Stock Market   1.02
The Yield on Composite of Global Risk-Free Assets   2.79%

Using information below, calculate the "global" cost of equity for AK Corporation:

U.S. Treasury Yield   3.24%
Average Return of the U.S. Stock Market   9.40%
Average Return of the Global Stock Market   10.49%
Beta Coefficient of AKC vs S&P 500   0.84
Beta Coefficient of AKC vs Global Stock Market   1.02
The Yield on Composite of Global Risk-Free Assets   2.79%

Using information below, calculate the cost of debt for AK Corp:

Average Yield to Maturity on Outstanding Debt   8.25%
Effective Tax Rate   32.15%

Using information below, calculate the weighted average cost of capital
for AKC's global operations:

AKC Cost of Debt   6.10%
AKC Cost of "Domestic" Equity   9.31%
AKC Cost of "Global" Equity   12.14%
Value of Outstanding Equity (in Millions)   11,461 €
Value of Outstanding Debt (in Millions)   4,584 €

cost of equity = risk free rate + (beta * (average market return - risk free rate))

domestic cost of equity = 3.24% + (0.84 * (9.40% - 3.24%)) = 8.4144%

global cost of equity = 2.79% + (1.02 * (10.49% - 2.79%)) = 10.644%

cost of debt = YTM * (1 - tax rate)

cost of debt = 8.25% * (1 - 32.15%) = 5.597625%

WACC = (weight of debt * cost of debt) + (weight of equity * cost of equity)

weight of debt = value of debt / (value of debt + value of equity)

weight of equity = value of debt / (value of debt + value of equity)

weight of debt = 4,584 / (4,584 + 11,461) = (4,584 / 16,045)

weight of equity = 11,461 / (4,584 + 11,461) = (11,461 / 16,045)

WACC = ((4,584 / 16,045) * 6.10%) + ((11,461 / 16,045) * 12.14%)

WACC = 10.4144%

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