Estimate the weighted average cost of capital for the company. The balance sheet

Question

Estimate the weighted average cost of capital for the company.  The balance sheet and some other information follow below:

Total liabilities and shareholders equity                               $139,000,000

You check The Wall Street Journal and see that stock is currently selling for $10.50 per share and that bonds are selling for $925.00 per bond.  The bonds have a S1,000 par value, a 7.25% annual coupon rate, semiannual payments, are not callable, and with a 20-year maturity are yielding 8.57%. Beta is 2.0 and the yield on a 6-month Treasury bill is 1.65%, while the yield on a 20-year Treasury bond is 2.50%.  The expected return on the stock market is 4.50%, but the market has had an average annual return of 7.5% during the past 5 years,  in the 35% tax bracket.

1)Using the CAPM approach, what is the best estimate of the cost of equity?

2)What is the best estimate for the weigts to be used when  calclating the WACC?

3)What is the nest estimate of the WACC?

4) Today is July 7, 2011 and you retrieve the financail statement to find the LTM EBITDA.  Which ones should you get and how would you use them?  The fscal year ended September 30, 2010 (your answer should include te annual and quarterly statement dates and whether the information should be added or subtracted).

Explanation / Answer

Estimate the weighted average cost of capital for the company. The balance sheet

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