What does the WACC measure? How would you gather information for each component (weights and costs)...
What does the WACC measure? How would you gather information for each component (weights and costs) of the WACC formula (assume the company has preferred shares and incurs a tax rate of 30%)?
correct and short answer please
Homework Answers
The WACC measures the amount that has to be paid to the providers of capital to finance the assets of the firm.
The information about the weight of the different components of the WACC is provided in the question.
WACC = weight of debt * after tax cost of debt + weight of equity * cost of equity + weight if preference* cost of preference
D/ A* After tax cost of debt + E/A * cost of equity + P/A * cost of preference
D/A is the weight of debt E/A weight of equity and P/A is the weight of preference.
The total weight would be = weight of debt+ equity + preference shares.
The total market value of debt can be calculated as 50,000 bonds of 1000 par value the bonds are trading at $950.
value of debt = $950* 50,000
= $475,00,000
So, when the value of debt is divided by the total market value of the firm we can calculate the D/A.
The cost of equity is calculated as :
Re = D1/Po + g
Weight of equity would be for example, 1,000,000 million of $25 each. The shares are trading at $30. So, the market value of equity is :
= 1,000,000 * $30
= $3,0000,000
Similalrly, we can compute the E/A .
The cost of equity can also be calculated as per the CAPM model.
The cost of debt is calculated after tax and it is the yield to maturity of the debt :
The weight of debt can be calculated as 300,000 shares trading at $45 each.
Cost of preference is calculated as:
Rp = DP/ Rp
Add Answer to:
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Using market value and book value (separately), find the
adjusted WACC, using 30% tax rate.
Please include formulas in the answer. I need to understand how
to calculate the book and market values of debt and stock as shown
in the grey boxes.
Thank You!
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Using market value and book value (separately), find the
adjusted WACC, using 30% tax rate.
Please include formulas in the answer. I need to understand how
to calculate the book and market values of debt and stock as shown
in the grey boxes.
Thank You!
Using market value and book value (separately), find the adjusted WACC, using 30% tax rate Component Debt Preferred Stock Common Stock Balance Sheet Value 5,000,000.00 4.000,000.00 2.000,000.00 Market Value Cost of Capital 890 10% 13%...
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11-15 WACC Suppose lidl Tup 35 percent debt, and that its before-tax cost of UED 10 equity is 13 percent. If the appropriate weighted average tax rate is 34 percent will be TapDance's WACC? (LG11-2) 11-16 WACC Suppose that JB Cos, has a capital structure of 78 percent equity, 22 percent debt, and that its before-tax cost of debt is 11 percent while its cost of equity is 15 percent. If the appropriate...
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