Question
A company has 3 million shares outstanding at a market price of $1.50 each. The company's...
A company has 3 million shares outstanding at a market price of $1.50 each. The company's bonds have a total market value of $2,700,000, have a coupon rate of 3% p.a. and currently yield 4% p.a. The current market value of preference shares is $500,000 and currently return 5% p.a. The company has a beta of 0.7, the market risk premium is 6% p.a., the risk-free return is 2% p.a., and the company tax rate is 30%,
What is the firm's weighted average cost of capital (WACC)?
[Be sure to show the calculation of each part of the WACC, and the final value for the WACC.]
Homework Answers
Answer #1
Solution:
In order to calculate WACC, cost, and weight of respective assets needs to be calculated and then the WACC
WACC = 4.93%
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