Purchase Solution

Solve for Weighted-Average Cost of Capital (WACC)

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Find the WACC

KNOWN:
Book value of firms equity \$10,000,000
Book value per share \$20
Stock Sales Price / per share \$30
Cost of Equity 15%
Bonds par value \$5,000,000
Sell price % of Par (Bonds) 110%
Yield to Maturity (Bonds) 9%
Firms Tax Rate 40%

Market
Value

Debt FORMULA
Equity FORMULA
Total \$0

After Tax Cost
Debt FORMULA
Equity 15%

WACC
Debt Formula %
Equity Formula %
Total

Solution Summary

In a very detailed series of calculations, the response provides the answer to the problem.

Solution Preview

The formula for WACC is as follows:

WACC = Rd(1-Tc)D/V + Re E/V

Where

Rd is the cost of debt (i.e. the yield on bonds)
Re is the cost of equity
Tc is the ...

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