Question

Question 11

A firm has a market capitalization (market value of equity) of $16 Billion and net debt of $12 Billion. Calculate the weight of debt in the firm's weighted average cos of capital (WACC) calculation. (Note: Enter your answer as a percentage rounded to two decimal places.] 

Question 12

A firm has an effective (after-tax) cost of debt of 3%, and its weight of debt is 40%. Its equity cost of capital is 9%, and its weight of equity is 60%. Calculate the firm's weighted average cost of capital (WACC). (Enter your answer as a percentage rounded to two decimal places.] 

Answer 1

Ans 11	WACC is calculated by multiplying the cost of each capital source (debt and equity) by its relevant weight, and then adding the products together to determine the value.
	E=Market value of the firm’s equity = $ 16 b D=Market value of the firm’s debt = $ 12 b V=E+D = $ 28 b ​
	It is calculated by dividing the market value of the company's equity by sum of the market values of equity and debt.
	Weight of Debt in WACC = E/V=16/28	= 57.14 %
	Cost of Debt = 3%
	Weight of Debt = 40%
	Equity Cost of Capital = 9%
	Weight of Equity = 60 %
Ans 12	WACC = E/V	81.82%
	E = 9% * 60%	5.400%
	D=3%*40%	1.200%
	V=E+D	6.600%

Answer 2

ANSWER :

11.

C = E + D = 16 + 12 = 28 billion dollars.

Weight of debt in the capital = D/C = 12 / 28 = 0.4286 = 42.86% (ANSWER).

12.

WACC 

= We * rE + Wd * (rD after tax)  

= 0.60 * 9 + 0.40 * 3

= 6.6 % (ANSWER)