Final Exam (Part II)
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| Final Exam (Part II) 50 points | ||||||||||
| Given the following information for Syarikat Co., find the WACC. The company's tax rate is 35%. | ||||||||||
| Debt: 7,000 8% coupon bonds outstanding, 20 years to maturity, selling for 104% of par, bonds make semiannual payments | ||||||||||
| Common Stock: 120,000 shares outstanding, selling for $82 per share, beta is 1.20 | ||||||||||
| Preferred Stock: 10,000 shares preferred stock outstanding, $8.25 dividend, currently selling for $80 per share | ||||||||||
| Market: 7% market risk premium and 4.5% risk-free rate | ||||||||||
| Syarikat Company | ||||||||||
| Tax Rate (T) | 35% | |||||||||
| Your task is the following: | ||||||||||
| To find the weighted average cost of capital. But in oder to do so, you must find all the other component costs first. | ||||||||||
| For instance in the case of debt, you must know the coupon rate, par value, years to maturity, payment, number of bonds outstanding, | ||||||||||
| current price, and total value of the debt and the cost of debt before and after tax. You MUST show each calculation and the the final cost of debt. | ||||||||||
| To simplify matters for you, all the variables are listed in the box for cost of debt. The same thing applies to the other costs and for calculating the weights. | ||||||||||
| Using all these information, you calculate the WACC. | ||||||||||
| Debt | Coupon Rate | Common Stock | P0 | |||||||
| Par Value | Beta | |||||||||
| Years to maturity | Market Premium | |||||||||
| Payment Schedule | Semi-annual | Risk-free Rate | ||||||||
| Number of bonds | Shares outstanding | |||||||||
| Price as percent of par value | Total Value (# shares * share price) | |||||||||
| Current Price (Par value * selling % of par) | ||||||||||
| Total Value (# bonds * price per bond) | rs = Rf + (RM - Rf) βs | |||||||||
| FV | Cost of Internal Equity rs = | |||||||||
| PV | ||||||||||
| N | Preferred Stock | P0 | ||||||||
| PMT | Shares outstanding | |||||||||
| I/Y = | Dividend | |||||||||
| Cost of Debt (Annual YTM ) rd = | Total Value (# shares * share price) | |||||||||
| Weights | Total Market Value of the Firm = Total Value of Debt + Total Value of CS + Total Value of PS | rP = D / P0 | ||||||||
| Total Market Value of the Firm = | ||||||||||
| Cost of Preferred stock rP = | ||||||||||
| Weight of Debt wd = Value debt / value of the firim | ||||||||||
| Weight of CS wc = value of common stock / value of the firm | WACC = wc * rs + wp * rp + wd * rd * (1-T) | |||||||||
| Weight of PS wp = value of preferred stock / value of the firm | WACC = | |||||||||
| WACC = | ||||||||||
12 years ago
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