Explore BrainMass
Share

Weighted Average Cost of Capital (WACC)

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

Clark Communications has a capital structure that consists of 70 percent common stock and 30 percent long-term debt. In order to calculate Clark's weighted average cost of capital (WACC), an analyst has accumulated the following information:

? The company currently has 15-year bonds outstanding with annual coupon payments of 8 percent. The bonds have a face value of \$1,000 and sell for \$1,075.
? The risk-free rate is 5 percent.
? The market risk premium is 4 percent.
? The beta on Clark's common stock is 1.1.
? The company's retained earnings are sufficient so that they do not have to issue any new common stock to fund capital projects.
? The company's tax rate is 38 percent.

Given this information, what is Clark's WACC?

© BrainMass Inc. brainmass.com October 10, 2019, 12:41 am ad1c9bdddf
https://brainmass.com/business/weighted-average-cost-of-capital/clark-communications-weighted-average-cost-capital-wacc-301748

Solution Preview

Formula

WACC = E/V * y + D/V * d * (1- Tr)

Where E = Market Value Equity; D = ...

Solution Summary

The solution computes weighted average cost of capital for Clark Communications.

\$2.19