Explore BrainMass

Explore BrainMass

    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

    Solution Preview


    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.