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Good afternoon. Can anyone work out this problem. Its finding multiple parts for Debt, Common Stock, and Preferred Stock in order to find the WACC.
Good afternoon. Can anyone work out this problem. Its finding multiple parts for Debt, Common Stock, and Preferred Stock in order to find the WACC. Thank you.
Given the following information for Syarikat Co., find the WACC. The company's tax rate is 35%. | |||||||
Debt: 7,000 8% coupon bonds outstanding, 20 years to maturity, selling for 104% of par, bonds make semiannual payments | |||||||
Common Stock: 120,000 shares outstanding, selling for $82 per share, beta is 1.20 | |||||||
Preferred Stock: 10,000 shares preferred stock outstanding, $8.25 dividend, currently selling for $80 per share | |||||||
Market: 7% market risk premium and 4.5% risk-free rate | |||||||
Syarikat Company | |||||||
Tax Rate (T) | 35% | ||||||
Your task is the following: | |||||||
To find the weighted average cost of capital. But in oder to do so, you must find all the other component costs first. | |||||||
For instance in the case of debt, you must know the coupon rate, par value, years to maturity, payment, number of bonds outstanding, | |||||||
current price, and total value of the debt and the cost of debt before and after tax. You MUST show each calculation and the the final cost of debt. | |||||||
To simplify matters for you, all the variables are listed in the box for cost of debt. The same thing applies to the other costs and for calculating the weights. | |||||||
Using all these information, you calculate the WACC. | |||||||
Debt | Coupon Rate | Common Stock | P0 | ||||
Par Value | Beta | ||||||
Years to maturity | Market Premium | ||||||
Payment Schedule | Semi-annual | Risk-free Rate | |||||
Number of bonds | Shares outstanding | ||||||
Price as percent of par value | Total Value (# shares * share price) | ||||||
Current Price (Par value * selling % of par) | |||||||
Total Value (# bonds * price per bond) | rs = Rf + (RM - Rf) ?s | ||||||
FV | Cost of Internal Equity rs = | ||||||
PV | |||||||
N | Preferred Stock | P0 | |||||
PMT | Shares outstanding | ||||||
I/Y = | Dividend | ||||||
Cost of Debt (Annual YTM ) rd = | Total Value (# shares * share price) | ||||||
Weights | Total Market Value of the Firm = Total Value of Debt + Total Value of CS + Total Value of PS | rP = D / P0 | |||||
Total Market Value of the Firm = | |||||||
Cost of Preferred stock rP = | |||||||
Weight of Debt wd = Value debt / value of the firim | |||||||
Weight of CS wc = value of common stock / value of the firm | WACC = wc * rs + wp * rp + wd * rd * (1-T) | ||||||
Weight of PS wp = value of preferred stock / value of the firm | WACC = | ||||||
WACC = |
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