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For the following questions, please make these assumptions:
* The 10-Year Treasury is yielding 3.00%
* The Equity Risk Premium is 5.00%
* Bonds trade at a premium to the risk-free rate of return as follows:
Rating Premium Over Treasuries
HCA is a provider of hospital and community-based medical services. It has a market capitalization of $44 billion and outstanding debts of $66 billion. Its beta is 0.78. Its debt is rated BB. Its tax rate is 30%.
Given this information, what is the WACC, rounded to the nearest tenth of one percent?
Your aunt needs your help. She has to decide whether to take a buyout from her company on her pension plan. She can either keep the pension plan and receive $20,000 per year for life or she can take a one-time payout of $400,000. She believes that her diversified investment portfolio is such that she should value money at 5% per year. What would you recommend?
a) Keep the pension because it is worth more to her
B) Take the buyout; its a better deal
C) They are economically identical, so either way is the same financially
D) It depends on who wins the 2018 World Series