You are trying to calculate the WACC for two firms. Firm XiG is publicly traded and firm TanW is a private firm. You have collected all necessary information for your WACC calculation:



In terms of liabilities, XiG has account payables of $400Million and a bank loan of $200Million. XiG also has cash holding of $300Million. XiG is current trading at $520/share with 1 Million shares outstanding. XiG's returns move one to one with the stock market returns.



XiG's average tax rate is 30% and marginal tax rate of 35%. XiG is rated as Aa1 by Moody's and similar Aa1 rating firms have cost of debt of 2%. Risk free rate is 1%, market risk premium is 5%.



TanW is in the same industry as XiG. After consulting with an industry expert, you are confident that TanW and XiG have roughly the same business risk. Currently, TanW has net debt to equity ratio of 2. TanW's average tax rate is 30% and marginal tax rate of 35%. Its cost of debt is 3%.



Now you proceed to calculate the WACC for both firms.





Q1. Which firm's cost of equity (rE) can only be calculated using comparable method?

Q2. What is the net debt for XiG?

Q3. What is the market value of equity for XiG?
Q4. What is WACC for XiG?
Q7. What is the WACC for TanW?

Answer rating: 100% (QA)

Q1 XiGs cost of equity rE can only be calculated using the comparable method because it is a publicl... View the full answer