FIND WACC WACC – the cost of capital (hurdle rate) will be the current yield of
ID: 2740520 • Letter: F
Question
FIND WACC
WACC – the cost of capital (hurdle rate) will be the current yield of the 10 Year U.S. Treasury Note as of Tuesday July 5, 2016, plus 700 basis points (Please explain how you calculated it in details).
More instructions:
Your WACC interest rate (hurdle rate) will be to find the U.S. Treasury 10 Year yield as of July 5 and then add 700 basis points to that interest rate. Two requirements: locate the rate and then determine what 700 basis points represents and account for that in the WACC determination.
Explanation / Answer
As on 5th July 2016, the US Treasury 10 year yield was 1.37% (Source -https://ycharts.com/indicators/10_year_treasury_rate) WACC = 1.37% + 7% = 8.37% The 700 basis points represent additional risk of company such as business risk and financial risk.
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