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# Calculate WACC for Boonville and Western Transportation Co.

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The Boonville and Western Transportation Co. has the following capital structure.

&#61553; Stock \$50 mil with a P/E of 8
&#61553; Bonds \$20 million at 8 %

The company has a tax rate of 35%

What is the weighted average cost of Capital (WACC)

If the Boonville and Western Transportation Co had Bonds of \$50 million and Stock of \$20 million what would the (WACC) be?
Is this an overstatement?

#### Solution Preview

- What is the weighted average cost of Capital (WACC)?
We need to know the stock's growth rate g and its dividend payout ratio d.
The dividend paid is then the product of earnings and dividend payot ratio, i.e., D= E*d
By Dividend Discounted Model, the stock's cost ...

#### Solution Summary

The solution presents all the calculations for the weighted average cost of capital (WACC) plus a response to the question about an overstatement.

\$2.19