Question

Consolidated Appliances has a Beta of 0.85, the risk-free interest rate is 2.5%, and the equity...

Consolidated Appliances has a Beta of 0.85, the risk-free interest rate is 2.5%, and the equity risk premium is 5.5%. The yield to maturity on Consolidated Appliances debt is 4.65%. The company is financed 58% with equity, and 42% with debt, and has a tax rate of 21%. What is the WACC for consolidated Appliances?

Please use excel, this is how I need to answer it and it's confusing to me

Homework Answers

Answer #1
Cost of debt
Cost of debt 4.65%
Tax rate 21%
After-tax cost of debt =4.65%*(1-21%)
After-tax cost of debt 3.67%
Cost of equity stock
Cost of equity= Risk free rate + beta * Market risk premium
Cost of equity= 2.5% + 0.85 * 5.5%
Cost of equity= 7.175%
Calculation of WACC
Cost Weight Weighted cost
A C=Capital component/Total capital D=A*C
Debt 3.67% 42.00% 1.54%
Equity 7.18% 58.00% 4.16%
Total capital Total WACC 5.70%
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