Purchase Solution

Finding the WACC and the Target Capital Structure

Not what you're looking for?

Ask Custom Question

I need to find the WACC (all three) for PG&E, which is a power company in northern California. Their website is pge.com. I have been trying to do it on my own, but somehow the numbers don't match up.

1. What is the WACC of PG&E Corp. (PCG)?
2. What is PG&E's target capital structure

Purchase this Solution
Solution Summary

In this solution we explain how to determine the weighted average cost of capital (WACC) for a particular business and how to determine the businesses target capital structure.

Solution Preview

** Please see the attached file for the complete Excel formatted solution **

WACC is calculated by the following formula:

WACC = Value of Firms' Equity x Cost of Equity + Value of Firms' Debt x Cost of Debt x (1-Tax Rate)
Value of Firm's Equity + Debt Value of Firm's Equity + Debt

First step is to compute the value of various capital source

option 1 - Market value as of the end of Previous Year

Market value of a firm's Equity is calculated by multiplying the firm's current stock price by its outstanding number of shares.

No of shares outstanding as at December 31, 2011 412,257,082
Stock price as at December 31, 2011 $41.22 ...

Solution provided by:
Sonia Agarwal, CA
Education
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
Recent Feedback
  • "I got this feedback and I wanted to know if you can explain it to me. I noticed something within your workings which I believe is incorrect.  It looks like you've mistaken the Debt ratio for the Equity Multiplier.  You've done a calculation to determine Return on Equity (ROE) but if you take a look at the ratios provided for us you'll see ROE listed on the bottom line already.  You can use ROE, Profit Margin and Total Asset Turnover to figure out the Equity Multiplier amount.  Equity multiplier is not provided for us and we need to calculate it.  I really hope this is helpful to you.  "
  • "Very attentive to detail. Answers are designed in easy to understand format."
  • "Fast response and thorough answer"
  • "thank you very much! "
  • "thank you so much !!!!!!!"
Purchase this Solution
Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Lean your Process

This quiz will help you understand the basic concepts of Lean.

View More Free Quizzes
Related BrainMass Solutions

  • Weighted Average Cost Of Capital (WACC)

    297666 Finding Weighted Average Cost Of Capital: Example Problem Target capital structure 40% debt, 10% preferred, 50% common equity, interest rate on new debt 7.5%, yield on preferred is 7.0%, cost of retained earning is 11.50%, tax rate is 40%, no new

  • Capital Structure and Dividend Policy : Target Structure

    219203 Capital Structure and Dividend Policy : Target Structure The firm's target structure is consistent with which of the following?

  • Cost of common equity and WACC

    269991 Cost of common equity and WACC Patton Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. It's before tax cost of debt is 12%, and it's marginal taz rate is 40%.

  • Impact on WACC

    Leveraged Capital Structure Impact on WACC A firm has determined its cost of each source of capital and optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Target Market

  • Cost of Equity

    We can find the cost of capital by finding WACC as follows: - WACC is the weighted average cost of capital whereby the target proportions of debt and equity along with the component costs of capital are used to calculate.

  • Computing the Value of Operations and Equity

    615716 Computing the Value of Operations and Equity Name______________________________________ FINC 5880 Session 9 Shares outstanding 10,000,000 FCF0 5,000,000 Target debt in capital structure 30% Constant growth rate 6%

  • WACC

    WACC = Proportion of debt X after tax cost of debt + Proportion of preferred stock X cost of preferred stock + Proportion of common stock X cost of common stock WACC uses the target capital structure We are given the costs and the target capital structure

  • Benefits of warehouses to customers

    Capital Structure & WACC - Apex Printing Writer's name Course name and number Instructor's name Date Abstract This paper mainly focuses on determining the target WACC of Apex Printing.

  • David Ortiz Motors has a target capital structure of 40 percent debt and 60 percent equity.

    91106 David Ortiz Motors has a target capital structure of 40 percent debt and 60 percent equity. David Ortiz Motors has a target capital structure of 40 percent debt and 60 percent equity.

View More Related Solutions