90.2K

Verified Solution

Link Copied!

Estimating Cost of Debt Capital The December 31, 2018, partial financial statements taken from the annual report for AT&T Inc. follow. Consolidated Statements of Income Dollars in millions except per share amounts 2018 2017 Operating revenues Service $152.345 $145,597 Equipment 18,411 14,949 Total operating revenues 170,756 160,546 Operating expenses Equipment 19,786 18,709 Broadcast, programming and operations 26,727 21.159 Other cost of services (exclusive of depreciation and amortization show separately below) 32,906 37,942 Selling general and administrative 36,765 35,465 Abandonment of network assets 46 2914 Depreciation and amortization 28,430 24,387 Total operating expenses 144,660 140.576 Operating income 26,096 19.970 Other Income (expense): interest expense (7.957) (6,300) Equity in net income of affiliates (48) (128) Other income (expense). net 6.782 1,597 Total other income (expense) (1,223) (4.831) Income before income taxes 24,873 15,139 Income tax expense 4,920 (14,708) Net income $19.953 S 29.847 0207 Consolidated Balance Sheets -Liabilities and Equity Sections Dollars in millions except per share amounts, December 31 Current liabilities 2018 2017 Debt maturing within one year Accounts payable and accrued liabilities 510.255 $3,314 43184 34.470 Advanced billed and customer deposits 5.948 4.213 Accrued taxes 1.179 1,262 Dividends payable 3.854 3,070 Total current liabilities 04420 31.330 Long-term debt 166.250 125.972 Deferred credits and other noncurrent abilities: Deferred income taxes 57.359 Post employment benefit obligation 19.218 31.775 Other noncurrent liabilities 30.233 19747 Total deferred credits and other noncurrentibilities 102 310 04.720 Stockholders equity Common stock (1 par value 14.000.000.000 authorized December 31, 2018 and 2017;ssued 7,620748.518 December 31, 2015 and 6.495.231.00 December 31, 2017) 7621 6.495 Additional pals in capital 125525 89.563 Retained earnings 58.753 50.500 Treasury stock (338, 120,073 at December 31, 2018 and 355.606.541 December 31, 2017 at cost 112.0591 112.714 4249 Accumulated other comprehensive income 9.795 1,146 Noncontrolling interest 193.884 142.007 Total stockholdersecuity $531864 $444,097 Total liabilities and stockholders' equity 7012 Consolidated Statements of Stockholders' Equity -- Excerpts 2018 Amount in millions except per share amounts, December 31 Shares Amounts Common Stock Balance at beginning of year 6,495 $ 6,495 Issuance of stock 1,126 1,126 Balance at end of year 7,621 $7,621 Additional Paid-In-Capital Balance at beginning of year $ 89,563 Issuance of common stock 35,473 Issuance of treasury stock (115) Share-based payments 604 Balance at end of year $125,525 Retained Earnings Balance at beginning of year $50,500 Net income attributable to AT&T (52.85 per diluted share) 19,370 Dividends to stockholders ($2.01 per share) (14117) Cumulative effect of accounting changes and other adjustments 3,000 Balance at end of year $ 58,753 Treasury stock Balance at beginning of year (356) $(12.714) Repurchase of common stock (20) (692) Issuance of treasury stock 37 1,347 Balance at end of year (339) $112.059) (a) How much interest expense did AT&T incur during 2018? $ 0 x million (b) What is the book value of AT&T's interest-bearing debt at the end of 2018? $ 0 million At the beginning of 2018? $ 0x million Average debt for 2018? (Round to the nearest whole number) $ 0 x million (c) Estimate AT&T'S 2018 pretax cost of debt capital. Round your answer to one decimal place. 0 X % (d) Estimate AT&T's 2018 effective (that is, average) tax rate from information in its income statement. Round your answer to one decimal place. 0 X % (e) Using your rounded answer from (c) above, estimate AT&T's 2018 after-tax cost of debt capital. The company's statutory tax rate is: 21%. Round your answer to one decimal place, 0 X 96 Estimating Cost of Debt Capital The December 31, 2018, partial financial statements taken from the annual report for AT&T Inc. Consolidated Statements of Income Dollars in millions except per share amounts 2018 2017 Operating revenues Service $152,345 $145,597 Equipment 18,411 14,949 Total operating revenues 170,756 160,546 Operating expenses Equipment 19,786 18.709 Broadcast, programming and operations 26,727 21.159 Other cost of services (exclusive of depreciation and amortization show separately below) 32,906 37,942 Selling, general and administrative 36,765 35,465 Abandonment of network assets 46 2.914 Depreciation and amortization 28,430 24,387 Total operating expenses 144,660 140,576 Operating income 26,096 19.970 Other income (expense): Interest expense (7.957) (6.300) Equity in net income of affiliates (48) (128) Other Income (expense) - net 6,782 1.597 Total other income (expense) (1.223) (4,831) Income before income taxes 24,873 15,139 Income tax expense 4,920 (14,708) Net income $19.953 $ 29,847 Consolidated Balance Sheets -Liabilities and Equity Sections Dollars in millions except per share amounts, December 31 Current liabilities 2010 2017 Debt maturing within one year Accounts payable and accrued liabilities $10.255 538376 Advanced billed and customer deposits 43.184 34,470 5.943 4.213 Accrued taxes 1,129 Dividenda payable 1.262 3.854 3.070 Total current liabilities 64420 51,389 Long term debit 166.250 125.972 Deferred credits and other noncurrent liabilities: Deferred income taxes 57859 13.207 Post employment benefit obligation 19.218 31.775 Other norxurrent abilities 30.233 19.747 Total deferred credits and other noncurrent abilities 107 210 44.729 Stockholders' equity Common stock (51 par value. 14.000.000.000 authorized at December 31, 2018 and 2017: issued 7.620.748.390 December 31, 2018 and 6.495.231.08 at December 31, 2017 7.621 6,495 Additional paid in capital 125.525 99563 Retained earning 38.753 50.500 Treasury stock339,120.073 at December 2014 and 155,806,541 December 31, 2017 at cost (12.059 (12,714 4,349 7,017 Accumulated other comprehensive income Noncontrolling interest 2.795 1.145 Total stockholders equity 103014 12.000 5531.054 SL.097 Total liabilities and stockholders' equity Consolidated Statements of Stockholders' Equity - Excerpts 2018 Amount in millions except per share amounts, December 31 Shares Amounts Common Stock Balance at beginning of year 6,495 $ 6,495 Issuance of stock 1,126 1,126 Balance at end of year 7,621 $7,621 Additional Paid-In-Capital Balance at beginning of year $ 89,563 Issuance of common stock 35,473 Issuance of treasury stock (115) Share-based payments 604 Balance at end of year $125,525 Retained Earnings Balance at beginning of year $50,500 Net income attributable to AT&T (52.85 per diluted share) 19.370 Dividends to stockholders ($2.01 per share) (14,117) Cumulative effect of accounting changes and other adjustments 3,000 Balance at end of year $ 58,753 Treasury stock Balance at beginning of year (356) $(12,714) Repurchase of common stock (20) (692) Issuance of treasury stock 37 1,347 Balance at end of year (339) $(12,059) (a) How much interest expense did AT&T incur during 2018? $ 0x million (b) What is the book value of AT&T's interest-bearing debt at the end of 2018? 0 x million At the beginning of 2018? $ 0 million Average debt for 2018? (Round to the nearest whole number) $ 0 X million (c) Estimate AT&T's 2018 pretax cost of debt capital. Round your answer to one decimal place. 0 x 96 (d) Estimate AT&T's 2018 effective (that is, average) tax rate from information in its income statement. Round your answer to one decimal place. 0 X 96 fe) Using your rounded answer from (c) above, estimate AT&T's 2018 after-tax cost of debt capital. The company's statutory tax rate is: 219 Round your answer to one decimal place. 0 x 4

Answer & Explanation Solved by verified expert

See Answer