Question
Let's go over one example on how to calculate WACC. Please provide your solutions for the following example. The following financial statement data pertains to
Let's go over one example on how to calculate WACC. Please provide your solutions for the following example.
The following financial statement data pertains to Southwater, Inc., a manufacturer of women's suits (dollar amounts in millions):
Total Assets $154,287
Interest-Bearing Debt $33,984
Average Pre-tax borrowing cost 7.75%
Common Equity:
Book Value $21,365
Market Value $66,735
Income Tax Rate 39.6%
Market Equity Beta 0.77
Market Premium 7.45%
Risk-free interest rate 2.5%
Required:
a. Calculate the company's cost of equity capital.
b. Calculate the weight on debt capital that should be used to determine Southwater's weighted-average cost of capital.
c. Calculate the weight on equity capital that should be used to determine Southwater's weighted-average cost of capital.
d. Calculate Southwater's weighted-average cost of capital.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started