Question

Question No. 2   

Continuing illustration 19, it the firm has 18,000 equity shares of $100 each outstanding and the current market price is $300 per share. The cost of issuing shares is 12%. The market values and book values of the debt is $1500000 with the cost of debt 5% and preference capital is $1200000 with cost of acquiring 10%.  

1. What is the total capital of this company with proportions of each capital component in total capital structure (percentage)?

2. Calculate the market value weighted average cost of capital (WACC).   

Answer 1

of deft Market value 1,500,000 Market value of equity 5,400,000 (18.000 shares * $300) Market value of firm 6.900,000 Book value of debt 1,500,000 Book value of equity 1,800,000 ( 181000 shares * $100) Book Value of firm 3,300,000 Market value debt ratio = 1,500,000 6.900.000 * TOO 21.74 1. Book Value debt ratio 1,500,000 * roo 6.900.000 11 21.74%

WACC = (cost of equity * ). Of equity) + (cost of debt * %. Of debt) (1-tax rate) =(5,400,000 16,900,000 1,500,000 * 12%. + *57. 6,900,000 0.1048 (or) 10.48%.