How To Compute Present Weighted Average Cost Of Capital (WACC) For Any Corporation. Using CAPM]?

2

2 Answers

Anonymous Profile
Anonymous answered
WHAT IS THE FIRM WEIGHTED-AVERAGE COST OF CAPITAL AT VARIOUS COMBINATION OF DEBT AND EQUITY GIVEN TO THE FOLLOWING INFORMATION.
DEBT/ASSET TAX COST OF DEBT EQUITY OF COST

10 8% 12%
  10 8 12
   20 8 12
    30 8 13
  40 9 14
  50 10 15
  60
  12 16
saad khan Profile
saad khan answered
Here is the solution
Cost of Common Shares using CAPM

r = rRF + Beta (rM - rf)

r = 10% + 1.5(14% - 10%)
= 10% + 1.5(4%)
= 10% + 6%
= 16%

Weighted Average Cost of Capital (WACC) = rds + rExE + rPxP

WAAC = rds + rExE + rPxP
= (9.5% x 3/10(1-40%)) + (10% x 0.48/10) + (16% x 6.52/10)
= 0.0171 + 0.0048 + 0.10432
= 12.62%

Answer Question

Anonymous