Scribd
Upload
22 views1 page

Module 8 - WACC Example

This document provides an example calculation of the weighted average cost of capital (WACC) for a firm. It includes equity information like the number of outstanding shares, share price, and beta. It also includes debt information like the face value, current quote, coupon rate, and maturity. It then calculates the cost of equity using the capital asset pricing model and the pre-tax cost of debt using the yield to maturity approach. Lastly, it determines the market values of equity and debt to calculate the weights for each, and combines these figures to determine the firm's WACC of 13.06%.

Uploaded by

Suryakant Kaushik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
22 views1 page

Module 8 - WACC Example

This document provides an example calculation of the weighted average cost of capital (WACC) for a firm. It includes equity information like the number of outstanding shares, share price, and beta. It also includes debt information like the face value, current quote, coupon rate, and maturity. It then calculates the cost of equity using the capital asset pricing model and the pre-tax cost of debt using the yield to maturity approach. Lastly, it determines the market values of equity and debt to calculate the weights for each, and combines these figures to determine the firm's WACC of 13.06%.

Uploaded by

Suryakant Kaushik
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 1

WACC example

Equity information
# shares outstanding
Share price
Beta
Market risk premium
Risk-free rate

Debt information
Face value
Current quote
Coupon rate
# coupons / year
Maturity

50 million
80
1.15
9%
5%

Cost of equity?
Re = Rf + beta * market risk premium

Tax rate
$1.000 billion
110
9%
2
15 years

15.3500%

Pre-tax cost of debt? Need the YTM on the firm's bonds:


This example shows that instead of using the price of ONE bond and the coupon paid on ONE bond,
you can use the MV of ALL the bonds combined and the coupon paid on ALL the bonds combined
MV of the bonds = BV of the bonds * current quote
Coupon paid on ALL the bonds = (coupon rate / 2) * BV of bonds
PV
pmt
FV
n

$1.100 billion
$0.045 billion

$1.100 billion
$0.045 billion
$1.000 billion
30 semi-annual periods

Semi-annual YTM
Annual YTM

3.927%
7.854%

Capital structure weights?


E: MVE = # shares outstanding * share price
D: MV of debt

$4.000 billion
$1.100 billion

D+E:

$5.100 billion

MVE + MVD

WACC?
WACC = Re * (E / (D+E)) + Rd * (1-T) * (D / (D+E))

13.06%

40%

You might also like