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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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    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.

    $2.19

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