Differences Between Leasing and Borrowing

Question 1
Solution 1
a) Book value of debt
=Book value of bond 1+ Book value of bond 2
=860,000,000+1,270,000,000
=2,130,000,000
b) Book value of equity
=BV of equity per share * Outstanding shares
=12.15*141900000
= 1,724,085,000
c) Book value of the company
= Book value of debt + Book value of equity
=2,130,000,000+1,724,085,000
=3,854,085,000
d) Market value of debt
=Face value * price at par
=Market value of bond 1+ Market value of bond 2
=860,000,000*0.94347+1,270,000,000*0.96643
= 2,038,750,300

e) Market value of equity
=Stock Price * Outstanding shares
=78.56*141900000
= 11,147,664,000
f) Market value of company
= Market value of debt + Market value of equity
=2,038,750,300+11,147,664,000
= 13,186,394,300.00
Solution 2
a) WACC using Book Value
WACC =Weight Debt * cost of debt *(1 – T) + Weight equity *cost of equity (Lumen
Learning Courses, 2019)
Weight Debt
=2,130,000,000/3,854,085,000= 55.27%
Weight Equity
= 1,724,085,000/3,854,085,000 =44.73%
Cost of Debt
=39.80%*3.045%+60.20%*2.965% =2.997%
Cost of equity using CAPM
Re = Rf+ Beta*(Rm –Rf)
=0.03%+1.380*7.5%

=10.38%
WACC=55.27%*2.997%*(1-30%)+44.73%*10.38%
= 5.8%
b) WACC using market value
WACC =Weight Debt * cost of debt *(1 – T) + Weight equity *cost of equity+
Weight Debt (Lumen Learning Courses, 2019)
=2,038,750,300/13,186,394,300= 15.46%
Weight Equity
=11,147,664,000/13,186,394,300=84.54%
Cost of Debt
=39.80%*3.045%+60.20%*2.965% =2.997%
Cost of equity using CAPM
Re = Rf+ Beta*(Rm –Rf)
=0.03%+1.380*7.5%
=10.38%
WACC=15.46%*2.997%*(1-30%)+84.54%*10.38%
= 9.1%