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.

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