Allergan (AGN): corporate tax rate = 12.5% cost of debt = 3.4867% cost of prefer
ID: 2617258 • Letter: A
Question
Allergan (AGN):
corporate tax rate = 12.5%
cost of debt = 3.4867%
cost of preferred stock = 13.75/161.62 (1-0.055) = 9%
cost of common equity = 8.28%
capital structure =
Total Debt to Total Equity = 40.74
Total Debt to Total Capital = 28.95
Total Debt to Total Assets = 25.41
Interest Coverage = -0.26
Long-Term Debt to Equity = 37.51
Long-Term Debt to Total Capital = 24.87
Long-Term Debt to Assets = 0.22
1) Determine the weighted average cost of capital (WACC) forAllergan (AGN). Create an Excel spreadsheet where you explain how you calculated those numbers and what was your reasoning.
Explanation / Answer
Answer :-
Given
Total Debt to Total Equity = 40.74
Total Debt to Total Capital = 28.95
Total Debt to Total Assets = 25.41
Let assume total Capital is 100 then
if total debt / total capital = 28.95 there fore total debt is 28.95
then total equity is find out by total capital - total debt = 100 - 28.95 = 71.05
then , Total Debt to Total Assets = 25.41 there fore total assets is 28.95/25.41% = 113.93
Long-Term Debt to Total Capital = 24.87 therefore long term debt is 24.87
therefore short term debt is = total debt - long term debt = 28.95-24.87 = 4.08
Long-Term Debt to Equity = 37.51 therefore equity = 24.87/37.51% =
Equity = 66.30
then prefrence share capital is total equity - equity = 71.05 - 66.30 = 4.75
Column1 Value Weights Cost Cost after tax Cost*Weights Equity 66.3 0.663 8.28% 8.28% 5.49% Prefrence 4.75 0.0475 9% 9% 0.43% Debt 28.95 0.2895 3.49% 3.05% 0.88% total capital 100 Therefore weighted avg cost of capital = 6.80%Related Questions
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