Question

**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 €

Answer #1

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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