Question
Using the assumptions for ValueCo below, complete the following questions regarding the weighted average cost of capital (WACC): ValueCo Assumptions Debt-to-Total Capital 30.0% Cost of
Using the assumptions for ValueCo below, complete the following questions regarding the weighted average cost of capital (WACC):
ValueCo Assumptions
Debt-to-Total Capital 30.0%
Cost of Debt 6.0%
Tax Rate 38%
Risk-free Rate 3.0%
Firm Beta 1.1
Market Risk Premium 6.6%
Firm Size Premium (FSP) 1.1%
a.Calculate ValueCo's cost-of-equity
Cost of Equity
Risk-free Rate
Market Risk Premium
Levered Beta
Size Premium
Cost of Equity
b.Calculate ValueCo's WACC
WACC Calculation
Capital Structure:
Debt-to-Total Capital
Equity-to-Total Capital
Debt:
Cost of Debt
Tax Rate
After-tax Cost of Debt
Equity:
Risk-free Rate
Market Risk Premium
Levered Beta
Size Premium
Cost of Equity
WACC
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Practical Financial Management
Authors: William R. Lasher
6th Edition
1439080496, 978-1439080498
