What is the wacc of samsung

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Reference no: EM132699157

Samsung hired you as a consultant to help estimate its cost of capital (WACC). You have been provided with the following data:

1. Samsung currently has one type of bond outstanding. The bond is marking semi-annual coupon payment. It has 20 years left until maturity and is carrying a7.25% coupon rate. It currently has a yield-to maturity of 8.57%. The bond has a book value of $40 million as indicated on the balance sheet.

2. A typical saving account at a bank is offering an interest rate of 1.5%, GIC is currently offering a return of 2.5% and a 25-year Government of Canada bond is currently yielding at 5.5%.

3. The beta of Samsung's stock is 1.25 and the expected return of the market index such as TSX composite index is 11.5%.

4. There is currently 10 million shares of Samsung stock trading publicly on the TSX stock exchange. Samsung is expected to pay a dividend of $1.2 per share nest year. The actual market price of Samsung IS considered undervalue because the actual return is 16% which is different than the expected return of the stock.

5. The tax rate associated with Samsung is 40%. What is the WACC of Samsung?

Reference no: EM132699157

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