Question

			Weighted Average Cost of Capital (WACC)
	1	In its 2017 10-k Black Diamond Equipment reported the following information about its capital structure. The firm had long term public debt outstanding of 500 million dollars and short term debt of 31.5 million dollars. It's average cost of debt was 8.25%. The firm had 10 million public shares outstanding and each share was currently trading for $84.75. It's cost of equity was 15.6%. The firms current marginal tax rate was 35%. What is it's weighted average cost of capital (WACC)?
		WACC
		Equity value				Debt Value
		Shares outstanding, millions				Long Term Debt
		Times: Share price, $				Short Term Debt
		Equity value, $ million				Debt Value, $ million
		Weighted average cost of capital
				Proportion			After-tax	Contribution
			Market value,	of total	Cost of	Marginal	cost of	to weighted
		Source of capital	$ million	capital, %	capital, %	tax rate, %	capital, %	average, %
		Debt
		Equity
		Enterprise value					Wacc=
	2	In its 2017 10-k Apple reported the following information about its capital structure. The firm had long term public debt outstanding of 20 billion dollars and short term debt of 475 million dollars. It's average cost of debt was 6.25%. The firm had 150 million public shares outstanding and each share was currently trading for $840.75. It's cost of equity was 18.6%. The firms current marginal tax rate was 35%. What is it's weighted average cost of capital (WACC)?
		WACC
		Equity value				Debt Value
		Equity value, $ million				Debt Value, $ million
		Weighted average cost of capital
				Proportion			After-tax	Contribution
			Market value,	of total	Cost of	Marginal	cost of	to weighted
		Source of capital	$ million	capital, %	capital, %	tax rate, %	capital, %	average, %
		Debt
		Equity
		Enterprise value					Wacc=
	3	In its 2017 10-k Tesla reported the following information about its capital structure. The firm had long term public debt outstanding of 2.5 billion dollars and short term debt of 136.75 million dollars. It's average cost of debt was 12.65%. The firm had 85 million public shares outstanding and each share was currently trading for $240.30. It's cost of equity was 21.89%. The firm also had 10 million preferred share outstanding, and each preferred share was currently trading for 112.50. The preferred dividend was 7.5%. The firms current marginal tax rate was 35%. What is it's weighted average cost of capital (WACC)?
		WACC
		Equity value				Debt Value			Preferred Value
		Equity value, $ million				Debt Value, $ million			Equity value, $ million
		Weighted average cost of capital
				Proportion			After-tax	Contribution
			Market value,	of total	Cost of	Marginal	cost of	to weighted
		Source of capital	$ million	capital, %	capital, %	tax rate, %	capital, %	average, %
		Debt
		Equity
		Preferred
		Enterprise value					Wacc=

Answer 1

1) Statement showing WACC

Source of income	Amount	Weight	K	WACC= Weight*K
Debt	531.5	38.54%	5.36%	2.067%
Equity	847.5	61.46%	15.60%	9.587%
	1379			11.654%

Cost of debt = 8.25*0.65 =5.36%

2) Statement showing WACC

Source of income	Amount	Weight	K	WACC= Weight*K
Debt	2475	1.92%	4.06%	0.078%
Equity	126113	98.08%	18.60%	18.242%
	128588			18.320%

Cost of debt = 6.25*0.65 =4.06%

3) Statement showing WACC

Source of income	Amount	Weight	K	WACC= Weight*K
Debt	2636.75	10.90%	8.22%	0.896%
Equity	20425.5	84.45%	21.89%	18.486%
Pref shares	1125	4.65%	7.50%	0.349%
	24187.3			19.731%