WORLDWIDE PAPER COMPANY

WACC

Interest rates of January 2000

Government bonds:
1-year 4.96%
5-year 4.57%
10-year 4.60%
20-year 4.73%

Corporate bonds:
Aaa 5.37%
Aa 5.53%
A 5.78%
Baa 5.37%

Balance-sheet accounts in 1999:

Bank loan payable 500
Long-term debt 2,500 Debt = Debt/(Debt + Equity)
Common equity 500
Retained earnings 2,000 = 3,000/(3,000 + 12,000(500*24)) = 20%

Equity = Equity/(Debt + Equity)

Per-share data:
Shares outstanding millions 500 = 12,000/(3,000 + 12,000) = 80%
Book value per share $ 5.00
Recent market value per share $24.00 WACC = Cost Debt × %Debt × (1 − Tax Rate) + Cost
Equity × %Equity
Other financial information:
Bond rating A 5.8% × 20% × (1 − 0.4) + 11.2% × 80%=
Beta 1.10 9.7%
Tax rate 40%
Market premium 6.0%