Calculate the weighted average cost of capital for the Luxury Porcelain Company. The book value of Luxury's outstanding debt is $60 million. Currently the debt is trading at 120% of book value and is priced to yield 12%. The 5 million outstanding shares of Luxury stock are trading at $20 per share. The required return on Luxury stock is 18%. The tax rate is 25%.© BrainMass Inc. brainmass.com October 9, 2019, 7:43 pm ad1c9bdddf
See the attached file.
Market value of debt= 72 million =120%*60
Market value of equity= 100 million =5*20
Step 1: Calculate the after tax cost of ...
The solution calculates the Weighted Average Cost of capital by first calculating the after tax cost of debt.