# 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