Question

5.​Calculate the WAAC with the following information:

​​Equity Information​​​​Debt Information

​​10,000 shares​​​​$200,000 in outstanding debt ​​​​​​​​​(face value)

​​$60 per share

​​Beta = 1.2​​​​​Current quote = 100

​​Market risk premium = 12%​​Annual coupon rate = 10%

​​Risk-free rate = 5%​​​​Tax rate = 20%

Answer 1

​WACC=(VE​×Re)+(VD​×Rd×(1−Tc))

WACC formula is the summation of two terms:

\left ( \frac{ E }{ V} \times Re \right )(VE​×Re)

\left ( \frac{ D }{ V} \times Rd \times ( 1 - Tc ) \right )(VD​×Rd×(1−Tc)