Question

what is after tax weighted average cost of capital

QUESTION 5 Go to the Quiz 5 Spreadsheet (Quiz 5 Blackboard Worksheet.xls) Go to the Walmart Debt Schedule tab. Assume the weighted average after-tax cost of debt is 2.55%. Use the yahoo finance published beta of Walmart as 0.65. Assume the long-run equilibrium risk free rate is 3.80% and that the long run equilibrium market risk premium is 7.80%. Compute the after-tax weighted average cost of capital. The appropriate result is: 8.12% 6.57% 6.43% d 8.03%

Answer 1

Using CAPM cost of equity =Risk Free rate+beta*market risk premium =3.80%+0.65*7.80% =8.87%
Total Fair Value of Debt =35816+1800+2870+3524+1651 =45661
Total Market value =Market of equity+market Value of Debt =338583+45661=384244

WACC =weight of equity*Cost of Equity+Weight of Debt*Cost of Debt*(1-Tax rate) =338583/384244*8.87%+45661/384244*(1-30.70%) =8.03%

Option d is correct option