Question

Homework 10 For IBM, find the following items (Hint: Try using Yahoo Finance & FINRA) which are required for you to calculate the Weighted Average Cost of Capital (WACC): - Shares outstanding = ..0.85. H M .. - Stock price= ..34.31 - Equity = $..118,926,000.1995.46.134.31) - Debt = $.35.605.000....135.605.000() + - Preferred stock $. ... Equity beta 1.34.. Market risk premiune 5% ......... - US treasury yield (10-year) = .....79.... - Cost of equity (CAPM) leo! .................% (W ARE 1.7% + (54- 1.797.) 1:34 - Pre-tax cost of debt = 2.25% 2.888,000 - Tax rate 27..........................% 10,407,000 - Credit rating - Cost of preferred stock - WACC = ...........

Ignore the credit rating, how do you calculate WACC using the info?

Answer 1

Hello Sir/ mam

YOUR REQUIRED ANSWER IS 5.07%

Given that:

Market Cap of Equity = $118,926,000

Debt = $35,605,000

Hence, Debt to Capital Ratio = 0.23

Equity to Capital Ratio = 0.77

Also give that:

Cost of Equity = 6.1%

Cost of debt = 2.25%*(1-27%) = 1.64%

Hence,

WACC = (0.23 * 1.64%) + (0.77 * 6.1%) = 5.07%

I hope this solves your doubt.

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