What target cost of capital based on market value estimates

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Target Corporation: Cost of Capital

According to its annual report, as of January 31, 2012, Target's borrowing costs averaged 4.6 percent, and its tax rate was 34.27 percent. A research report estimated Target's cost of capital at 10.5 percent. The firm had interest-bearing debt of $17,483. Moreover, Target's stock was trading at $50.81 per share, and there were 679.1 million shares outstanding. Now, let's assume Target's amount of debt is also a market value estimate of the debt. Let's also assume the current debt and equity values are at Target's optimal capital structure.

Question 1. Based on market value estimates, what is Target's cost of capital?

Question 2. How does it compare to Walmart's, and what explains the difference?

Reference no: EM132508611

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