Question

Adjusted WACC. Clark Explorers Inc., an engineering firm, has the following capital structure:

	Equity	Preferred Stock	Debt
Market Price	$49.41	$79.61	$970.65
Outstanding units	119,000	14,000	6,224
Book Value	$3,130,000	$1,025,000	$6,224,000
Cost of Capital	16.61%	11.73%	8.8%

Using market value and book value (separately, of course), find the adjusted WACC for clark explorers at the following tax rates:

What is the market value adjusted WACC for Clark explorers at a tax rate of 40%

What is the market value adjusted WACC for Clark explorers at a tax rate of 30%

What is the market value adjusted WACC for Clark explorers at a tax rate of 15%

What is the market value adjusted WACC for Clark explorers at a tax rate of 5%

Adjusted WACC. Clark Explorers, Inc., an engineering firm, has the following capital structure: Using market value and book val (separately, of course), find the adjusted WACC for Clark Explorers at the following tax rates: a. 40% b. 30% C. 15% d. 5% a. What is the market value adjusted WACC for Clark Explorers at a tax rate of 40%? % (Round to two decimal places.) - X Data Table in arder to copy its content into a spreadsheet Click on the Icon Debt Equity Preferred Stock $79.61 $970 65 Market Price $49 41 Outstanding units 14,000 $1,025,000 6224 119,000 $6,224,000 88 % $3,130,000 Book value Cost of capital 11.73% 16.61% Print Done

Answer 1

Market Value of Equity =Number of Units *Market Price =119000*49.41 =5879790
Market Value of Preferred Stock =Outstanding Units*Market Price =14000*79.61 =1,114,540
Market Value of Debt =Market Price *Number of Units =970.65*6224 =6,041,325.60
Total Value =5879790+1114540+6041325.60 =13,035,655.60
WACC at 40% =Weight of Equity*Cost of Equity+Weight of Preferred Stock*Cost of Preferred Stock+Weight of Debt*Cost of Debt*(1-Tax Rate) =5879790/13,035,655.60*16.61%+1114540/13,035,655.60*11.73%+6,041,325.60/13,035,655.60*8.8%*(1-40%) =10.94%

WACC at 30% =Weight of Equity*Cost of Equity+Weight of Preferred Stock*Cost of Preferred Stock+Weight of Debt*Cost of Debt*(1-Tax Rate) =5879790/13,035,655.60*16.61%+1114540/13,035,655.60*11.73%+6,041,325.60/13,035,655.60*8.8%*(1-30%) =11.35%

WACC at 15% =Weight of Equity*Cost of Equity+Weight of Preferred Stock*Cost of Preferred Stock+Weight of Debt*Cost of Debt*(1-Tax Rate) =5879790/13,035,655.60*16.61%+1114540/13,035,655.60*11.73%+6,041,325.60/13,035,655.60*8.8%*(1-40%) =11.96%

WACC at 5% =Weight of Equity*Cost of Equity+Weight of Preferred Stock*Cost of Preferred Stock+Weight of Debt*Cost of Debt*(1-Tax Rate) =5879790/13,035,655.60*16.61%+1114540/13,035,655.60*11.73%+6,041,325.60/13,035,655.60*8.8%*(1-5%) =12.37%