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Problem 13-5 Calculating WACC (LO1) The total book value of WTC’s equity is $13 million, and...

Problem 13-5 Calculating WACC (LO1)

The total book value of WTC’s equity is $13 million, and book value per share is $26. The stock has a market-to-book ratio of 1.5, and the cost of equity is 15%. The firm’s bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 10%, and the firm’s tax rate is 40%. What is the company’s WACC?

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Answer #1


Market Value of Equity = 13 million*1.5 = 19.5 million

market Value of debt = 9 million*110% = 9.9 million

Total Market value of capital = $29.4 million

WACC = Cost of Debt*Weight of Debt + Cost of Equity*Weight of Equity

= 10%(1-40%)*9.9/29.4 + 15%*19.5/9.9

= 11.97%

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