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Calculating WACC in the given case

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What is the weighted average cost of capital if:

Tax rate is 34%

A company has 150,000 shares of common stock outstanding with a market price of $40 per share
An annual dividend of $1.50 was paid last month
Dividend growth rate is 5%

There are 5,000 bonds outstanding with a $1000 face value per bond
bonds have a 10% coupon rate
bonds mature in 6 years
bonds are currently selling at 85% face value.

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Solution Summary

Solution calculates the Weighted Average Cost of Capital in the given case.

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Please refer attached file for better clarity of functions used in MS Excel.

First let us calculate weights of different components of capital.
Market Value of common stock=Mc=40*150000=$6,000,000.00
Price od a bond=85% of face value=1000*85%=$850
Market Value of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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