a, Inc. has a market value capital structure of 30% debt and 70% equity. The tax rate is 30%. The firm’s bonds currently trade in the market for $1035.00. These bonds have a face value of $1,000, coupon rate of 8% paid semiannually, and 10 years remaining to maturity. The firm’s common stock trades for $20 per share. The firm has just paid a dividend of $2. Future dividends are expected to grow at 2% per year. Based on this information, Ma, Inc.’s WACC is _____%. Cream and Crimson has a capital structure of 60% debt and 40% equity. The tax rate is 34%. The firm’s bonds currently trade in the market for $784. These face value $1,000 bonds have a coupon rate of 8%, paid semiannually, with 7 years to maturity. The firm’s common stock trades for $15 per share and the company’s beta is 1.28. The risk-free rate (Rf) = 3.2% and the market risk premium (Rm – Rf) = 8.1%. Given this information, Cream and Crimson’s WACC
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Ma, Inc. has a market value capital structure of 30% debt and 70% equity. The tax rate is 30%. The
firm’s bonds currently trade in the market for $1035.00. These bonds have a face value of $1,000,
coupon rate of 8% paid semiannually, and 10 years remaining to maturity. The firm’s common stock
trades for $20 per share. The firm has just paid a dividend of $2. Future dividends are expected to grow
at 2% per year. Based on this information, Ma, Inc.’s WACC is _____%.
Cream and Crimson has a capital structure of 60% debt and 40% equity. The tax rate is 34%. The firm’s
bonds currently trade in the market for $784. These face
paid semiannually, with 7 years to maturity. The firm’s common stock trades for $15 per share and the
company’s beta is 1.28. The risk-free rate (Rf) = 3.2% and the market risk premium (Rm – Rf) = 8.1%.
Given this information, Cream and Crimson’s WACC is _____%.
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