Published by admin on September 15, 2020 SantaFePacific amajorrailoperatorwithdiversifiedoperationshadearningsbefore interesttaxesanddepreciationof$637millionin1993withdepreciationamountingto $235 million (offsetbycapital expenditureof an equivalent amount). The firmis in steadystateandexpectedtogrow6%ayearinperpetuity.SantaFePacifichadabetaof 1.25in1993anddebtoutstandingof$1.34billion.Thestockpricewas$18.25attheend of1993andtherewere183.1millionsharesoutstanding.Theexpectedratingsandthe costsofdebtatdifferent levelsofdebtforSantaFeareshowninthefollowing table(The treasurybondrateis7%andthefirmfacedataxrateof40%.).D/(D+E)RatingCostofDebt(Pre-tax)0%AAA6.23%10%AAA6.23%20%A+6.93%30%A-7.43%40%BB8.43%50%B+8.93%60%B-10.93%70%CCC11.93%80%CCC11.93%90%CC13.43%Theearningsbeforeinterestandtaxesareexpectedtogrow3%ayearinperpetuity with capitalexpendituresoffsetbydepreciation.(Thetaxrateis40% the treasurybondrate is 7% […]