Respuesta :
Answer:
Sum of these three WACCs = 30.77%
Explanation:
As per the data given in the question,
We need to do following calculations which are shown below:
Cost of debt =Yield to maturity × (1 - tax rate)
=8% × (1 - 0.40)
= 4.8%
And, the required rate of return is 12.25%
To calculate Book value :
Total value = $25 million +$10 million × $5.00
= $75 million
WACC = (Debt ÷ total value ) × cost of debt + (Equity total value ÷ total value ) × cost of debt
= 25 ÷ 75 × 4.8% + 50 ÷ 75 × 12.25%
= 9.77%
To calculate Market value :
Total value = $27 million + 10 million × $20.00
= $227 million
WACC = 27 ÷ 227 × 4.8% + 200 ÷ 227 × 12.25%
= 11.36%
Now Target capital structure :
Weight of debt = 0.35
Weight of equity = 1 - 0.35 = 0.65
WACC = 0.35 × 4.8% + 0.65 × 12.25%
= 9.64%
Sum of these three WACCs
= 9.77% + 11.36% + 9.64%
= 30.77%
The sum of these three WACCs is 30.77%.
Based on the information given, the book value will be calculated as:
= $25 million + ($10 million × $5.00)
= $25 million + $50 million
= $75 million
The first WACC will be:
= (25 / 75 × 4.8%) + (50/ 75 × 12.25%)
= 9.77%
The second WACC will be:
= (27 / 227 × 4.8%) +( 200 / 227 × 12.25%)
= 11.36%
The third WACC will be:
= (0.35 × 4.8%) + (0.65 × 12.25%)
= 9.64%
Therefore, the sum of these three WACCs will be:
= 9.77% + 11.36% + 9.64% = 30.77%
In conclusion, the correct option is 30.77%.
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