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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