For the most recent fiscal year, book value of long-term debt atSchlumberger was $14969 million. The market value of this long-termdebt is approximately equal to its book value. Schlumberger’s shareprice currently is $54.64. The company has 1,000 million sharesoutstanding.
Managers at Schlumberger estimate that the yield to maturity onany new bonds issued by the company will be 8.66%. Schlumberger’smarginal tax rate would be 35%.
Schlumberger’s beta is 0.83. Suppose that the expected return onthe market portfolio is 8% and the risk-free rate is 2%.
Assume that the company will not change its capital structure.Also assume that the business risk of the projects underconsideration is about the same as the business risk ofSchlumberger as a whole.
What would Schlumberger’s after-tax WACC be, given thisinformation?
Do not round at intermediate steps in your calculation. Expressyour answer in percent. Round to two decimal places. Do not typethe % symbol.
