520 Part Five Payout Policy and Capital Structure
bre44380_ch19_491-524.indd 520 09/30/15 12:07 PM
- Horizon value Modify Table 19.1 on the assumption that competition eliminates any
opportunities to earn more than WACC on new investment after year 7 (PVGO = 0). How
does the valuation of Rio change?
Current assets $ 5,973 Current liabilities $ 5,994
Net property, plant, and equipment 35,169 Long-term debt 10,161
Investments and other assets 9,697 Other liabilities 12,508
Shareholders’ equity 22,176
Total $50,839 Total $50,839❱ TABLE 19.6 Simplified book balance sheet for Devon Energy,
September 2014 (figures in $ millions).Table 19.6 is a simplified book balance sheet for Devon Energy in September 2014. Here is some
further information:● ● ● ● ●
FINANCE ON
THE WEBa. Calculate Devon’s WACC. Use the capital asset pricing model and the additional infor-
mation given above. Make additional assumptions and approximations as necessary.
b. What is Devon’s opportunity cost of capital?
c. Finally, go to finance.yahoo.com and update your answers to questions (a) and (b).Number of outstanding shares (N) 409.1 million
Price per share (P) $68
Beta 1.54
Treasury bill rate 0.02%
20-year Treasury bond rate 3.01%
Cost of debt (rD) 4.70%
Marginal tax rate 35%