Problem
Aoort industries has 7 million shares outstanding and a current share price of $41 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity. has an annual coupon rate of 10%. and has a $92 million face value. The ?rst of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 6%. Aoort has EBIT of $34 million. which is expected to remain constant each year. New capital expenditures are expected to equal depreciation and equal $15 million per year. while no changes to net working capital are expected in the future. The corporate tax rate is 25%, and Acort is expected to keep its debt-equity ratio oonstant in the future {by either issuing additional new debt or buying back some debt as time goes on).
1. Based on this information, estimate Aoort's WACC.
2. What is Amrt's equity cost of capital?