Explore BrainMass
Share

# WACC

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

1.Calculate Company A's weighted average cost of debt, given the following information: (a) Tax Rate: 25%, (b) Average Price of Outstanding Bonds: \$975, (c) Coupon Rate: 4%, (d) NPER: 25, (e) Debt: \$23,000,000, (f) Equity: \$20,000,000, and (g) Preferred Stock: \$10,000,000.

2.Calculate Company B's weighted average cost of equity, given the following information: (a) Risk Free Rate of Return: 4%, (b) Market Return: 8%, (c) Beta for Company B: .80, (d) Debt: \$23,000,000, (e) Equity: \$20,000,000, and (f) Preferred Stock: \$10,000,000.

3.Calculate Company C's weighted average cost of preferred stock, given the following information: (a) Coupon Payments: \$4.00, (b) Price of Preferred Stock: \$65.00, (c) Debt: \$23,000,000, (d) Equity: \$20,000,000, and (e) Preferred Stock: \$10,000,000.

4.Calculate Company D's weighted average cost of capital, given the following information: (a) Tax Rate: 32%, (b) Average Price of Outstanding Bonds: \$1,050, (c) Coupon Rate (Debt): 6%, (d) NPER (Debt): 25, (e) Risk Free Rate of Return: 3%, (f) Market Return: 10%, (g) Beta for Company B: 1.00, (h) Coupon Payments on Preferred Stock: \$5.00, (i) Price of Preferred Stock: \$75.00, (j) Debt: \$23,000,000, (k) Equity: \$20,000,000, and (l) Preferred Stock: \$10,000,000.

#### Solution Summary

Calculation of cost of debt, cost of preferred stock, and cost of equity. Weighted average cost of capital

\$2.19

## Figuring the WACC, the unlevered beta & WACC with new capital structure

As the Vice President of a Finance company with the following available data:

Total assets \$ 10,000,000.00
Debt \$ 2,500,000.00
common equity \$ 7,500,000.00
before tax cost of debt 12.00%
risk-free rate 5.00%
Market Return 16.00%
beta at current capital structure 1.20
Tax Rate 40%

What is my firms's current Weighted Average Cost of Capital (WACC)?

What is my firm's unlevered beta?

If I am considering changing my firm's capital structure to 40% debt and 60% common equity, to make this change, I will issue additional debt and use the proceeds to repurchase common stock. If I do this, the before tax cost of debt will rise to 14%. What would be my firm's WACC if you adopt this new capital structure?

View Full Posting Details