Campbell Soup Company has 12,000 bonds outstanding, with 7 years to maturity. Th

Question

Campbell Soup Company has 12,000 bonds outstanding, with 7 years to maturity. The bond’s face value is 1,000. The coupon rate is 6% and coupons are paid semi-annually. The yield to maturity on the bonds is 4%. The company’s current share price is $50 and there are 1 million shares outstanding. The company just paid a dividend of $1.5, and expected annual dividend growth rate is 3%. The beta of its stock is 0.8. Expected risk-free rate is 0.5%, and expected market return is 7%. Corporate tax rates are 35%. Calculate two different WACCs for Campbell, using the dividend growth model and the CAPM to calculate the cost of equity.

Explanation / Answer

Campbell Soup Company has 12,000 bonds outstanding, with 7 years to maturity. Th

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