Required rate of return, r 11.

50%
Selling price of the stock 29.00
Expected growth rate, g 7.00%
D1=current divident 1.305
D0=last divident 1.22
Required rate of return, r 11.00%
g0 27.50%
g 6.00%
D 1.25

Year Date Dividend

0 1/1/2023 1.25 1.25
1 1/1/2024 1.59 1.44
2 1/1/2025 2.03 1.65
3 1/1/2026 2.59 -
4 1/1/2027 2.75 - P
Total 3.63 3.09 45.14
Infinity CF value 57.52 42.06
 Old price New price
D0 0.85 0.85
P0 22.00 34.00
g 6.00% 6.00%
D1=D0*(1+g) 0.901 0.901
Re=D1/P0+g 10.10% 8.65%
Difference=New price-Old price -1.45%
Liabilities
Coupon Rate 8%
Par Value 1000
Market Value 1225
Tax Rate 40%
Capital Presence 35%
Equity
Risk Free Rate 4.50%
Risk Premium Rate 5.50%
Beta 1.2
Capital Presence 65%
Cost of Capital 11.100%
Cost of Debt 3.92%
WACC 8.586%
Tax rate 40%
First calculate the after tax cost of debt 3.90%
Weight After tax costs
Debt 35% 3.90%
Preffered 10% 6%
Common 55% 14.75%
WACC =wd*rd+wp*rp+ws*rs 10.078%
YTM 7.75%
Tax rate=T 40%
D1 0.65
P0 17
F 10%
g 6%
Weight debt 45%
Weight equity 55.00%
After tax cost of debt 4.6500%
rS =( D1/(P0*(1 – F)) + g 10.2484%
WACC =wD*rD +wE*rS 7.7291%
Long-term debt 25
YTM=Yield to maturity 8.00%
Number of shares of common stock 10
Book value price per share 5
Required rate of return, r 12.00%
Tax rate 40%
Total current market value 27
Current stock price per share 20
Equity total value=share price* number of shares 50
Current equity total value 200
Cost of debt =Yield to maturity × (1 - tax rate) 4.80%
To calculate Book value :
Total value 75
WACC(1) = (Debt ÷ total value )*cost of debt + (Equity total value ÷ total value )*cost of debt 9.60%
To calculate Market value :
Total value : 227
WACC(2) 11.14%
Now Target capital structure :
Weight of debt 35%
Weight of equity 65%
WACC(3) 9.48%
Sum of these three WACCs 30.22%
million

million

million

million

million
rs 11.00%
g 8.00%
D5 0.69

Year Dividend PV of Dividend

0 - -
1 - -
2 - -
3 0.250 0.183
4 0.475 0.313
5 0.689 -
6 0.744 - P
Total 0.725 0.496 15.622
Infinity CF value 25.49 15.13
rs 12.00%
g0 30.00%
D0 1.00
P 36.00

Year Dividend PV of Dividend

0 1.0000 1.0000
1 1.3000 1.1607
2 1.6900 1.3473
3 2.1970 1.5638
4 2.8561 1.8151
Total 8.043 5.887 g
5.6329%