Given the following, find the WACC assuming the company‘s tax rate is 30%. Debt:

ID: 2774279 • Letter: G

Question

Given the following, find the WACC assuming the company‘s tax rate is 30%.

Debt: 8500 bonds, outstanding with a 7.2% coupon, $1000 par value, 25 years to maturity, current market yield is 5,82%, coupons made semi-annually.

Ordinary shares: 225000 shares outstanding, selling for $87 per share, beta is 1.15.

Preference shares: paying dividends of 8% of a $100 par value, 15 000 outstanding, currently selling for $98 per share.

Other information: Market risk premium = 7%, risk-free rate = 3.1%

What is the weighted average cost of capital?

Already have the answers, just need the working out.

WACC=E/V*RE+D/V*RD*(1-TC)

Re = cost of equity

Rd = cost of debt

E = market value of the firm’s equity

D = market value of the firm’s debt

V = E + D

E/V = percentage of financing that is equity

D/V = percentage of financing that is debt

Tc = corporate tax rate

E=225000/-

Debt= 8500/-

Re= 8%

Rd= 7%

Tax Rate= 30%

To find WACC, enter the values into the equation and solve:

WACC= [( 225000/225000+8500*0.08)]+[ 8500/225000+8500*0.07(1-0.30)]

=0.077+0.01764

=0.09464 or 9.464

the WACC for this firm then is 9.464%.

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