WACC 6.72% Cost of debt, i D 4.76% Corporate tax rate, T C 33.34% Total debt, D
ID: 2758347 • Letter: W
Question
WACC
6.72%
Cost of debt, iD
4.76%
Corporate tax rate, TC
33.34%
Total debt, D
12,760,000,000
Total equity, E
49,380,000,000
Total firm value, V
62,140,000,000
Cost of equity, iE
7.64%
1. Using data in the table confirm the accuracy of the site’s WACC calculation:
Weight of Equity
Weighted Average Cost of Equity
Weight of Debt
Pre-Tax Weighted Average Cost of Debt
After-Tax Weighted Cost of Debt
Weighted Average Cost of Capital
WACC
6.72%
Cost of debt, iD
4.76%
Corporate tax rate, TC
33.34%
Total debt, D
12,760,000,000
Total equity, E
49,380,000,000
Total firm value, V
62,140,000,000
Cost of equity, iE
7.64%
Explanation / Answer
Answer
Weight of Equity=49,380,000,000/62,140,000,000
=0.7946
Weight of Debt =12,760,000,000/62,140,000,000
=0.2053
R d
The pre-tax cost of debt, based on the current yield on traded company debt instruments or estimated, taking account of company gearing, size, industry risk, etc.
Pre-Tax Weighted Average Cost of Debt =0.476*.2053 =0.0977
After-Tax Weighted Cost of Debt =0.476*0.2053(1-33.34%)=0.00650
Weighted Average Cost of Capita=
= 0.7946 *0.764 +0.2053 (1-.33334) *.0476
6.72%
R d
The pre-tax cost of debt, based on the current yield on traded company debt instruments or estimated, taking account of company gearing, size, industry risk, etc.
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