Go Live Exercise - Week 7 - Question 1
Calculating WACC
Given the following information for Cleen Power Co., find the WACC. Assume the company's tax rate is 35%
Debt:	7,000 6% coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 105% pf par; the bonds make semiannual payments
Common Stock:	180,000 shares outstanding, selling for $58 per share; the beta is 1.10
Market:	6.5% market risk premium and 4.3% risk-free rate.
Required:
1. Find the market value of each type of financing
Bonds =
Stock =
Total Value of Firm =
2. Use the CAPM to find the cost of equity
CAPM: Rs = Rf + * (Rm - Rf)
Rf =
=
Rm - Rf =
Cost of Equity =
3. Calculate the cost of debt (after-tax YTM)
PV
Periods
Payment
FV
YTM =
After tax cost =
4. Calculate the WACC for the company
Debt Weighting
Equity Weighting
WACC =