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usco Po 2. WACC. Here is some information about Stokenchurch Inc.: Beta of common stock = 1.2 Treasury bill rate = 4% Market

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Answer #1

ANS- WACC = weight ( cost of equity ) + weight ( cost of debt)(1- tax rate)

Cost of equity = RF + B( market risk premium)

= 4% + 1.2 (7.5%)

= 13%

NOTE- Treasury bill rate is taken as risk free rate

Cost of debt = 6%

Total capital employed = market value of equity + book value of debt

= 880 + 880

= 1760

Weight of equity = Market value of equity / total capital employed

= 880 / 1760

= 50%

Weight of debt = book value of debt / total capital employed

= 880 / 1760

= 50%

WACC = 0.5 (cost of equity ) + 0.5(cost of debt) ( 1 - tax rate)

= 0.5 (13%) + 0.5(6%) (1 - 0.21)

= 6.5% + 2.37%

= 8.87%

Note - For equity always take market value of equity

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