Adjusted WACC. Clark Explorers Inc., an engineering firm, has the following capi
ID: 2627735 • Letter: A
Question
Adjusted WACC. Clark Explorers Inc., an engineering firm, has the following capital structure:
Equity
Preferred Stock
Debt
Market Price
$89.17
$175.03
$959.77
Outstanding units
127,000
7,000
6,736
Book Value
$2,741,000
$1,244,000
$6,736,000
Cost of Capital
16.97%
13.67%
10.9%
Using market value and book value (separately, of course), find the adjusted WACC for clark explorers at the following tax rates:
What is the market value adjusted WACC for Clark explorers at a tax rate of 40%
What is the market value adjusted WACC for Clark explorers at a tax rate of 25%
What is the market value adjusted WACC for Clark explorers at a tax rate of 20%
What is the market value adjusted WACC for Clark explorers at a tax rate of 5%
Equity
Preferred Stock
Debt
Market Price
$89.17
$175.03
$959.77
Outstanding units
127,000
7,000
6,736
Book Value
$2,741,000
$1,244,000
$6,736,000
Cost of Capital
16.97%
13.67%
10.9%
Explanation / Answer
EQUITY MARKET VALUE = 89.17*12700 = 1132459
PREFFERED MARKET VALUE =175.03*7000= 1225210
DEBT MARKET VALUE = 959.77*6736 = 6465010.72
TOTAL= 8822679.72
EQUITY PERCENTAGE =.13
PREFFERED MARKET PERCENTAGE=.14
DEBT PERCENTAGE=.73
TOTAL BOOK= 10721000
EQUITY BOOK PERCENTAGE= .26
PREFFERED BOOK PERCENTAGE = .12
DEBT BOOK PERCENTAGE=.62
A ADJUSTED WACC, MARKET VALUE
= .13*16.97%+.14*13.67%+.73*10.9%*(1-.4) = 7.24614
ADJUSTED WACC BOOK VALUE
= .26*16.97%+.12*13.67+.62*10.9 *(1-.4)= 7.68636
B ADJUSTED WACC, MARKET VALUE
= .13*16.97%+.14*13.67%+.73*10.9%*(1-.25) = 9.057675
ADJUSTED WACC BOOK VALUE
= .26*16.97%+.12*13.67+.62*10.9 *(1-.25) = 9.60795
C. ADJUSTED WACC, MARKET VALUE
= .13*16.97%+.14*13.67%+.73*10.9%*(1-.2) = 9.66152
ADJUSTED WACC BOOK VALUE
= .26*16.97%+.12*13.67+.62*10.9 *(1-.2) =10.24848
D. ADJUSTED WACC, MARKET VALUE
= .13*16.97%+.14*13.67%+.73*10.9%*(1-.05) =11.473055
ADJUSTED WACC BOOK VALUE
= .26*16.97%+.12*13.67+.62*10.9 *(1-.05) =12.17017
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