To properly calculate the Weighted Average Cost of Capital (WACC) you need to know several things....
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To properly calculate the Weighted Average Cost of Capital (WACC) you need to know several things. One of which would be the target capital structure (TCS) the firm has set. Let's assume a company - heck we need a name! OK let's assume, Baxter Boxers (yep an underwear company - when is the last time you saw THAT in a problem!) has a TCS of: 50% debt 10% preferred stock 40% common equity What would be Baxter's WACC using the following information: all debt will be from the sale of 20-year bonds with a coupon of 10% (assume no flotation costs), preferred stock's cost will be 13%, and common equity will be from retained earmings with an associated cost of 15%. The tax rate for this corporation is 20%. To properly calculate the Weighted Average Cost of Capital (WACC) you need to know several things. One of which would be the target capital structure (TCS) the firm has set. Let's assume a company - heck we need a name! OK let's assume, Baxter Boxers (yep an underwear company - when is the last time you saw THAT in a problem!) has a TCS of: 50% debt 10% preferred stock 40% common equity What would be Baxter's WACC using the following information: all debt will be from the sale of 20-year bonds with a coupon of 10% (assume no flotation costs), preferred stock's cost will be 13%, and common equity will be from retained earmings with an associated cost of 15%. The tax rate for this corporation is 20%.
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For calculating WACC we need the weights of the each source of funding and their respecti... View the full answer
Related Book For
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd Canadian edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang-Hsuan Chen, Gail Cook
Posted Date:
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