WACC - types of financing and book values
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Bolero has compiled the following information on its financing costs:
Type of Financing Book Value Market Value Cost
Long-term debt $5,000,000 $2,000,000 10%
Short-term debt $5,000,000 $5,000,000 8%
Common Stock $10,000,000 $13,000,000 15%
Total $20,000,000 $20,000,000
Bolero is in the 34 percent tax bracket. Calculate the weighted average cost of capital (WACC) for Bolero using
1. Book value weights
2. Market value weights.
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Solution Summary
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1.
First we need to calculate the different proportions:
Book Value Proportions:
Long Term Debt = 5/20 = .25
Short ...
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