A factory currently has a equity position of $ 4,000,000 with a cost of 10%, the preferred equity position is $2,000,000 with an annual cost of 15%, the company's debt cost is 6%. The company has assets worth $ 9,000,000. tax rate is 40%. Please calculate the WACC.
Total value of assets = $9,000,000
Value of equity = $4,000,000
Value of preferred stock = $2,000,000
Value of debt = $9,000,000 - $4,000,000 - $2,000,000
= $3,000,000.
Value of debt is $3,000,000.
Weight of equity = $4,000,000 / $9,000,000
= 44.44%
Weight of Preferred stock = $2,000,000 / $9,000,000
= 22,22%
Weight of debt = $3,000,000 / $9,000,000
= 33.33%
Now,
WACC is calculated below:
WACC = (44.44% × 10%) + (22.22% × 15%) + (33.33% × 6%) × (1 - 40%)
= 4.44% + 3.33% + 1.20%
= 8.98%
WACC of company is 8.98%.
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