17) Apple is expected to pay $2.50 dividend next year. Dividends will grow at 55

Question

17) Apple is expected to pay $2.50 dividend next year. Dividends will grow at 55% a year afterwards. Apple stock is selling for $52.50 today. Rd 7.5%, tax rate is 40%. Apple has 45% debt,55% equity, what is the WACC of Apple? 18) You are currently working as a sales agent with an annual salary of $45,000. You are accepted to an evening MBA program that will cost $180,000 to complete in 3 years After MBA your annual salary will increase to $60,000 per year. You will work for 20 years after MBA Your cost of capital is 12%. Should you do an MBA? 19 to 23) Apple wants to make iPads in USA instead of China. So, it is considering building a plant in USA vs. China. Both plants have 10-year life. 3 Initial Investment: China: $48, USA: $108 Wages: China: $400M, USA: $800M

Explanation / Answer

Answer 17.

Next Year Dividend, D1 = $2.50
growth rate, g = 5.5%
Current Price, P0 = $52.50

Cost of Equity, re = D1 / P0 + g
Cost of Equity, re = $2.50 / $52.50 + 0.055
Cost of Equity, re = 0.1026
Cost of Equity, re = 10.26%

WACC = Weight of Debt*rd*(1-tax) + Weight of Equity*re
WACC = 45%*7.50%*(1-0.40) + 55%*10.26%
WACC = 7.67%

So, WACC of Apple is 7.67%

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