Explore BrainMass
Share

Calculations for Finding the WACC

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

Find the WACC for a company with a tax rate of 35%

Debt: 5,000 7% coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 92% of par, the bonds make semiannual payments.

Common Stock: 100,000 shares outstanding, selling for $57 per share, the beta is 1.15

Preferred Stock: 13,000 shares of 7% preferred stock outstanding, currently selling for $104 per share.

Market: 8% market risk premium and 6% risk-free rate.

© BrainMass Inc. brainmass.com September 22, 2018, 7:15 am ad1c9bdddf - https://brainmass.com/business/weighted-average-cost-of-capital/finding-the-wacc-254562

Solution Preview

Cost of equity:

rs = rRF + (RPM)bi
= 6% + (8%) 1.15
= 15.2%

Find before interest rate:

Need to find YTM, which is rd.

Coupon rate, since it is semiannualy, we need to divide 7/2 = 3.5%
N = 20 years ...

Solution Summary

This solution provides calculations for finding the WACC.

$2.19