Weighted at market values, the composite grower's cost of capital comes to 7.96 percent in this MT480 Unit 7 estimate, with each input dated and sourced. Searches like "mt 480 unit 7 assignment example", "mt480 unit 7 sample" and "mt480 unit 7 example" land here.
What a finished MT480 Unit 7 cost of capital estimate looks like
Three pages and one input table. Equity is 48.6 million shares at a 31.40-dollar close, 1,526.04 million. The 5.40 percent notes, 350 million of face value, trade at 92.19 percent of par for a 6.40 percent yield, a market value of 322.66 million. A 140 million term loan priced at SOFR plus 1.75, or 6.05 percent, is carried at par. Weights come to 76.74, 16.22 and 7.04 percent. The cost of equity, 4.3 percent plus 0.84 times a 5.5 percent premium, is 8.92 percent; a dividend growth check gives 8.23. After the 24 percent tax rate, the notes cost 4.864 percent and the loan 4.598. The market-weighted result is 7.958 percent, against 7.195 on book weights. Beta at 0.74 or 0.94 moves the answer between 7.54 and 8.38.
How a MT480 Unit 7 example is structured
An input table leads, one row per figure with its value, its date and where it came from: the exchange close, the latest quarterly filing for shares outstanding and debt, a bond pricing service for the notes, the Treasury's daily yield page supplying the risk-free rate, the Unit 5 regression for beta and the course text for the premium. Weights follow, computed at market value, and one sentence explains why the term loan sits at par. Each component cost gets its own short section, with the notes' yield taken from their price rather than their coupon and both debt costs taxed. The combined rate appears once, with the arithmetic shown. Two checks close the estimate, a dividend growth cost of equity and a book-value version, each explained rather than averaged in. A final paragraph says which projects the rate suits and which it would misprice.
An input table with dates
Ten inputs, each paired with a date and a source line, sit in one table so a reader can trace every percentage in the estimate back to its origin.
The notes' price sets their cost
The notes' 5.40 percent coupon is historical; their 6.40 percent yield at a 921.89 price is what new lenders would demand from the grower today.
Two debt costs after tax
Multiplying by 0.76 turns 6.40 and 6.05 percent into 4.864 and 4.598, since interest reduces the grower's taxable income dollar for dollar.
Equity by two routes
The capital asset pricing model gives 8.92 percent and a dividend growth model 8.23; the estimate keeps the first because the growth input sits below what the share price implies.
Book weights as a warning
Book equity of 684 million gives equity only 58.26 percent weight, pulling the rate down to 7.195 percent and flattering every project tested against it.
Which projects this rate fits
The 7.96 percent suits projects resembling the grower's existing greenhouses; a riskier expansion into new output would need a premium above it.
Where marks go in MT480 Unit 7
Book-value weights, where the prompt asks for market values, account for the largest single deduction in cost of capital work, and here that error lowers the answer by 0.763 of a point. Using the notes' coupon instead of their current yield is nearly as common and understates the debt cost by a full point. An untaxed debt cost is a third frequent slip. Inputs without dates or sources lose points directly wherever the rubric names citation, which for this assignment is most sections. Market premium figures pulled from nowhere, or a Treasury bill yield used where the prompt specified the ten-year bond, draw comment. The strongest estimates end by limiting the rate's use, noting that one company-wide figure misprices any project whose risk departs sharply from the business as a whole.
Get a MT480 Unit 7 example written to your instructions
Name the company your section assigned, or attach the case figures; add the Unit 7 instructions and rubric. Every input in the estimate you get back carries a date and a source, weights sit at market value, and any discarded check is explained. Your first custom sample is free of charge, generally within 24-48h.
MT480 Unit 7 questions, answered
Why is the term loan valued at par when the notes are not?
Its rate resets with SOFR, so its market value stays close to its balance, and no public price exists for it anyway. The notes carry a fixed coupon set years ago, and their traded price has moved as yields rose. The sample explains this in one sentence beside the weights, which is usually what a grader wants for any debt carried at book value.
Why not average the two costs of equity?
Averaging would hide a disagreement worth explaining. The dividend growth estimate depends heavily on its growth input, and the 4.5 percent used sits below the 5.25 percent the share price implies; with that higher rate the model gives 8.97 percent, close to the CAPM's 8.92. The sample reports this reconciliation and keeps the CAPM figure as its base.
What market risk premium should I use?
The one your course materials specify, since many sections name a figure or a source. Where they do not, published surveys and long historical averages commonly fall between about 4 and 7 percent, and the choice should be stated and cited. The sample uses 5.5 percent from its course text and shows how far the final rate moves when beta shifts, a comparable sensitivity.