1) MV of equity=Price of equity*number of shares outstanding |
MV of equity=65*415000 |
=26975000 |
MV of Bond=Par value*bonds outstanding*%age of par |
MV of Bond=1000*80000*1.08 |
=86400000 |
MV of Preferred equity=Price*number of shares outstanding |
MV of Preferred equity=103*100000 |
=10300000 |
MV of firm = MV of Equity + MV of Bond+ MV of Preferred equity |
=26975000+86400000+10300000 |
=123675000 |
Weight of equity = MV of Equity/MV of firm |
Weight of equity = 26975000/123675000 |
W(E)=0.2181 |
Weight of debt = MV of Bond/MV of firm |
Weight of debt = 86400000/123675000 |
W(D)=0.6986 |
Weight of preferred equity = MV of preferred equity/MV of firm |
Weight of preferred equity = 10300000/123675000 |
W(PE)=0.0833 |
2) Cost of equity |
As per CAPM |
Cost of equity = risk-free rate + beta * (Market risk premium) |
Cost of equity% = 2.8 + 1.25 * (8) |
Cost of equity% = 12.8 |
3)Cost of debt |
K = Nx2 |
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
k=1 |
K =18x2 |
1080 =∑ [(9*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^18x2 |
k=1 |
YTM = 8.1452785492 |
After tax cost of debt = cost of debt*(1-tax rate) |
After tax cost of debt = 8.1452785492*(1-0.35) |
= 5.29443105698 |
4) cost of preferred equity |
cost of preferred equity = Preferred dividend/price*100 |
cost of preferred equity = 4.5/(103)*100 |
=4.37 |
5) WACC=after tax cost of debt*W(D)+cost of equity*W(E)+Cost of preferred equity*W(PE) |
WACC=5.29*0.6986+12.8*0.2181+4.37*0.0833 |
WACC =6.85% |
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