Question

Given the following information for Company A, find the WACC. Assume the company’s tax rate is 21%

i.                Debt: 15,000 bonds selling for RM 1080, with a Yield To Maturity 5%

ii.              Common Stock: 500,000 shares outstanding, selling for RM 50 per share, the beta is 1.09

iii.            Preferred stock: 30,000 shares, paying fixed RM 5 dividend per share, selling at RM 60 per stock

The market risk - free rate is at 3.2% with 7% market risk premium.

Answer 1

we calculate the debt:

$16000\times1080\times105=18 144 000$

$CARM=3.2+1.09(7-3.2)=7.342$

we calculate the equity

$500 000\times50=25 000 000$

 preferred shares:

$30 000\times60=1 800 000$

$18 144 000+25 000 000+1 800 000=44 944 000$

$WACC=7.342\frac{25 000 000}{44 944 000}+\frac{5}{60}\frac{1 800 000}{44 944 000}+5\frac{18 144 000}{44 944 000}\times(1-0,21)=5.68$