Reference no: EM133000317

Samsung Inc. 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 a 20 year bond making semi-annual coupon payment and it only have 5 years left until maturity. When it was issued 15 years ago, it was issued at par and the market interest rate at that time was 6%. The market interest has increased to 8% as at today. The bond has a book value of $80 million as indicated on the balance sheet.
2. A typical chequing account at a bank is offering an interest rate of 1.5%, mortgage rate is at a historic low at 1.25% and a 25-year Government of Canada bond is currently yielding at 3.0%.
3. The beta of Samsung's stock is 0.9 and the expected return of the market index such as the Korea Composite Stock Price Index is 4.5%.
4. There is currently 8 million shares of Samsung stock trading publicly on the Korean stock exchange. Samsung has not been paying any dividend but is expected to initiate its first dividend next year at $0.5 per share. The actual market price of Samsung Inc. is considered overvalue because the actual return is 3.0% which is different than the expected return of the stock.
5. The tax rate associated with Samsung Inc. is 32%.
What is the WACC of Samsung Inc.?