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    Computing The Weighted Average Cost of Capital

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    The following is on a balance sheet

    Current Asset: $3,600
    Fixed Asset: $6,400

    Total Assets: $10,000

    Debt: $5200
    Preferred Stock: $600
    Common equity $4200

    Total liabilities and equity: $10,000

    The market value of debt, preferred stock, and common equity equals its book value. Cost of debt is 8.0%, it cost of preferred stock is 7.7% and its cost of common equity is 16.3% . Tax rate is 40% what is the WACC?

    Options (choose one)

    A. 9.80
    B. 10.43
    C. 9.65
    D 10.95
    E 10.23

    If possible please provide spread sheet

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    Solution Preview

    The after-tax cost of debt=cost of debt*(1-tax rate). In this case, the cost of debt is .08*(1-.40), or 4.80 percent.

    Type Cost Market Value Percentage ...

    Solution Summary

    Using an Excel 97-2003 file, given a company's balance sheet, tax rate and costs of equity and debt, it demonstrates how to compute the weighted-average cost of capital.