Question

Determine the Weighted Average Cost of Capital (WACC) for a firm with the following capital structure...

Determine the Weighted Average Cost of Capital (WACC) for a firm with the following capital structure

39,000 41.0%cpn bond due 2/1/2019 priced @101.009

47,000 5.05%cpn bonds due 2/1/2042 Priced @102.847

37,000 4.75% ptd's priced @91.15/shr

6,410,000.00 common shares priced @41.60/shr

Additional Market Data

Beta = .95

US T-Bill = 1.05%

Exp. Ret MKt = 10.90%

Tax Rate = 36.40%

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Homework Answers

Answer #1
Calculation of Cost of Equity
Ke Rf+beta*(Rm-Rf)
1.05%+0.95*(10.90%-1.05%)
0.1041
10.41%
Cost of Debt after tax
41% coupon rated 41%*(100%-36.4%)
0.2608
26.08%
5.05% coupon bond 5.05%*(100%-36.4%)
0.0321
3.21%

Weighted Average Cost of Capital

Particulars Cost Total Value Proportion Weighted Average cost of capital
41% Coupon bond 26.08% 3939351 1.412958 0.37
5.05% coupon bond 3.21% 4833809 1.7337803 0.06
4.75% Preference capital 4.75% 3372550 1.209659 0.06
Common Stock 10.41% 266656000 95.643603 9.96
278801710 10.44
Hence WACC 10.44%
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