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# Calculation of the Weighted Average Cost of Capital

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Estimate your firm's Weighted Average Cost of Capital. Assume that the current risk-free rate of interest is 3.5%, the market risk premium is 5%, and the corporate tax rate is 21%.
Debt:
Total book value: \$10 million
Total market value: \$12 million
Coupon rate: 6%
Yield to Maturity: 5%

Common Stock:
Total book value: \$15 million
Total market value: \$20 million
Beta = 1.1

Preferred Stock:
Total book value: \$2 million
Total market value: \$2.5 million
Price per share: \$20
Dividend per share: \$1.50
What is WACC

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#### Solution Preview

Total Market Value of the firm = \$12 + \$20 + \$2.5

= \$34.5

After-tax cost of debt = 5% x (1-21%)
= 3.95%

Using ...

#### Solution Summary

The solution is presented in word and excel format and shows a step by step calculation of the WACC.

\$2.49