Answer:
the company's WACC is 16.88%
Explanation:
Cost of Common Stock is Calculated as follows :
The available data allows us to use the (Capital Asset Pricing Model ) CAPM to calculate the cost of equity.
Cost of Common Stock = Risk free rate + Company`s Beta × Risk Premium
= 5.9 % + 1.12× 10 %
= 17.10%
Cost of Bonds is Calculated as follows :
Cost of Debt = Interest × (1- tax rate)
= 7.90% × ( 1- 0.30)
= 5.53%
Capital Source Market Value Weight Cost Total
Common Stock $35,190,000 98.05% 17.10% 16.77%
Bonds $699,840 1.95% 5.53% 0.11%
Total $35,889,840 100.00% 16.88%
Answer:
WACC is 15.23%
Explanation:
WACC = E/V *Ke+ D/V *Kd (1- tc)
Value of a company is given sum od debt and equity
Debt 6000 bonds selling at 108 % par
= 6000 *1000*108% = $6 480 000
Equity 510000 shares selling at $69
510000*69 =$35 190 000
Value = 6480000+35190000 =$41 670 000
Cost of equity use CAPM
Ke =5.9%+ 1.12(10%)
=17.1%
Cost of debt will be calculated as the YTM since our debt comprise of bonds only
C= 7.9%*1000÷2 = $39.5
n = 25*2= 50, F = 1000, P = 1000*108%=$1080
Kd = 7.9%
WACC =35190000/41670000 *17.1%+6480000/41670000*7.9%*(1-0.3)
=0.8445*17.1% +0.1555*7.9%*0.7
=0.1444 +0.0085
=0.1523/15.23%
