Explore BrainMass

Explore BrainMass

    Calculation of the Weighted Average Cost of Capital

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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

    © BrainMass Inc. brainmass.com March 5, 2021, 1:53 am ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/calculation-weighted-average-cost-capital-645326

    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

    ADVERTISEMENT