FIN -Nestle Enterprises is estimating its cost of capital for the first time

1)Nestle Enterprises is estimating its cost of capital for the first time and has made the following estimates: The firm's debt carries a AAA rating, which is currently yielding 6%; the firm pays taxes at a rate of 30%; the cost of equity is estimated to be 14%; and the firm's debt is equal to 20% of its enterprise value.

a)What is Nestle's estimated WACC?

b)If Nestle were to increase its debt level to 40% of enterprise value, the firm's investment banker has told the firm that its credit rating would drop to AA and correspondingly its cost of debt financing would rise to 7%. If the cost of equity corresponding to this new capital structure were to rise to 16%, what would be the firm's estimated WACC?

c)Construct a template to compute the firm's WACC assuming the firm uses only debt and equity financing. There will be two sections in the template: assumption area (include the following and only the following variables: debt ratio, cost of debt, tax rate, cost of equity) and a calculation area with one single output value - WACC. The template should automatically update the final answer of WACC by changing your assumption variables.

2) In December of 2005, Kodak had a straight bond issue outstanding that was due in eight years. The bonds are selling for 108.126% (or $1,081.26 per bond) and pay a semiannual interest payment based on a 7.25% (annual) coupon rate of interest. Assume that the bonds remain outstanding until maturity and that the company makes all promised interest and principal payments in a timely basis. What is the YTM to maturity to the bondholders in December of 2005?