3. Sensitivity of equity value to discount rate :
Discount rate Equity value
8.00% $
8.50%
9.00%
9.50%
10.00%
10.50%
11.00%
11.17%
11.50%
12.00%

5. notes payable ＋ current long-term debt ＋ long-term debt
×1.03＝
r＝12%
g＝3%
notes payable ＋ current long-term debt ＋ long-term debt
＝ ＋ 5.4 ＋ 435.9 ＝

6. ri ＝ rf＋β(rm－rf)
＝ 5.74＋0.8×5.9
＝ 10.46
≒ 10.5

7. WACC ＝ Kd(1－t) × D/(D＋E) ＋ Ke × E/(D＋E)
cost of debt
after adjusting for tax
2.7% ＝ 4.3% × (1－ tax rate)
＝ 4.3% × (1-38%)
WACC ＝ Kd(1－t) × D/(D＋E) ＋ Ke × E/(D＋E)
＝ 2.7% × 27.0% ＋ 10.5% × 73.0%
＝ 8.4%