Calculating the WACC-4916c2

xlsx

School

Northern Arizona University *

*We aren’t endorsed by this school

Course

120

Subject

Finance

Date

Nov 24, 2024

Type

xlsx

Pages

1

Uploaded by MegaResolve8522

Report
Calculating the WACC Skye Computer Company: Balance Sheet as of December 31 (in thousands of dollars) 2021 Current assets $1,600 Net fixed assets 2,400 Total assets $4,000 Accounts payable and accruals $800 Short-term debt 100 Long-term debt 800 Preferred stock 400 Common stock 925 Retained earnings 975 Total common equity $1,900 Total liabilities and equity $4,000 Last year's earnings per share $3.50 $50.00 $2.40 Growth rate of common dividend, g 8% Flotation cost for common stock, F 8% Common stock outstanding 40,000 $30.00 $3.60 Preferred stock outstanding 15,000 10% 4% 5% Beta 1.552 Tax rate 25% Total debt $900 thousand a. Calculating the cost of each capital component (using the DCF method to find the cost of common equity) After-tax cost of debt 7.50% Cost of preferred stock 12.00% Cost of retained earnings 13.18% Cost of new common stock 13.63% b. Calculating the cost of common equity from retained earnings, using the CAPM m Cost of retained earnings 11.21% c. Calculating the cost of new common stock based on the CAPM Flotation cost adjustment 0.45% Cost of new common stock 11.66% d. Calculating the firm's WACC assuming that (1) it uses only retained earnings for e (2) if it expands so rapidly that it must issue new common stock Weight Total debt $900 26.87% Preferred stock $450 13.43% Сommon equity $2,000 59.70% Total $3,350 100.00% 10.91% 11.18% Current price of common stock, P 0 Last year's dividend on common stock, D 0 Current price of preferred stock, P p Dividend on preferred stock, D p Before-tax cost of debt, r d Market risk premium, r M - r RF Risk-free rate, r RF Market value (in thousands) WACC 1 WACC 2 A B C 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58
Discover more documents: Sign up today!
Unlock a world of knowledge! Explore tailored content for a richer learning experience. Here's what you'll get:
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help