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

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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 provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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