Adjusted WACC . Clark Explorers Inc., an engineering firm has the following capi
ID: 2631359 • Letter: A
Question
Adjusted WACC. Clark Explorers Inc., an engineering firm has the following capital structure:
Equity
Preferred Stock
Debt
Market Price
$45.18
$114.55
$1028.53
Outstanding units
119,000
12,000
6,653
Book value
$2,582,000
$1,420,000
$6,653,000
Cost of capital
15.08%
11.95%
9.6%
Using market value and book value (separately, of course), find the adjusted WACC for Clark Explorers at the following tax rates:
40%
25%
20%
5%
What is the market value adjusted WACC for Clark Explorers at a tax rate of 40%__% (Round to two decimal places.)
What is the book value adjusted WACC for Clark Explorers at a tax rate of 40% __% (Round to two decimal places.)
What is the market value adjusted WACC for Clark Explorers at a tax rate of 25%__% (Round to two decimal places.)
What is the book value adjusted WACC for Clark Explorers at a tax rate of 25% __% (Round to two decimal places.)
What is the market value adjusted WACC for Clark Explorers at a tax rate of 20%__% (Round to two decimal places.)
What is the book value adjusted WACC for Clark Explorers at a tax rate of 20% __% (Round to two decimal places.)
What is the market value adjusted WACC for Clark Explorers at a tax rate of 5%__% (Round to two decimal places.)
What is the book value adjusted WACC for Clark Explorers at a tax rate of 5% __% (Round to two decimal places.)
Equity
Preferred Stock
Debt
Market Price
$45.18
$114.55
$1028.53
Outstanding units
119,000
12,000
6,653
Book value
$2,582,000
$1,420,000
$6,653,000
Cost of capital
15.08%
11.95%
9.6%
Explanation / Answer
WEIGHT BASIS :-BOOK VALUE Tax rate Cost of Equity Cost of Preferred Stock Cost of Debt Weight of Equity Weight of Preferred Stock Weight of Debt Adjusted WACC Book Value 40% 15.08 11.95 5.76 0.24 0.13 0.62 8.84 Equity 2582000 25% 15.08 11.95 7.2 0.24 0.13 0.62 9.64 Preferred 1420000 20% 15.08 11.95 7.68 0.24 0.13 0.62 9.93 Debt 6653000 5% 15.08 11.95 9.12 0.24 0.13 0.62 10.83 Total 10655000 WEIGHT BASIS :-MARKET VALUE Tax rate Cost of Equity Cost of Preferred Stock Cost of Debt Weight of Equity Weight of Preferred Stock Weight of Debt Adjusted WACC Market Value 40% 15.08 11.95 5.76 0.40 0.10 0.50 10.07 Equity 5376420 25% 15.08 11.95 7.2 0.40 0.10 0.50 10.83 Preferred 1374600 20% 15.08 11.95 7.68 0.40 0.10 0.50 11.07 Debt 6842810.09 5% 15.08 11.95 9.12 0.40 0.10 0.50 11.79 Total 13593830.09
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