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
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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