Purchase Solution

# Calculate the weighted average cost of capital (WACC)

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#1 Determine the weighted average cost of capital for a firm given the follow info below:

Equity : \$200,000 shares;stock price of \$73
Beta of 1.54; risk free rate of 4%; risk premium of 6%

Debt info: Book value of \$3 million; interest expense of \$278,000; average maturity of 13 years; Pre-tax cost of debt of 6.5%; tax rate of 30%

#2 What is the weighted average cost of capital if stock falls to \$65.70 (a 10% decline in price). Leave all other variables as the same before

#3 What is the weighted average cost of capital is stock prices fall for \$65.70 and the beta of the firm rises to 1.60. Leave all other variables to same as before.

#4 Suppose the pre-tax costs of debt increases to 8% because of the fall in stock price and rise in systematic risk. Determine the weighted average cost of capital.

##### Solution Summary

The solution calculates the weighted average cost of capital (WACC) under different scenarios.

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