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Please help me to calculate WACC (paper notes, chapter 17, example 9):
XXX is financed as follows:
Equity – 5 milion $1 shares quoted at $2,5 cum div, on which a constant dividend of 32c per share is about to be paid.
Debt – $4 milions 8% debentures quotedat 92 ex int.
corporate tax: 30%
a) calculate the returns to investors on equity and debt
answer: return on equity = 14,68%, return on debt = 8,7%
b) calculate WACC to company
cost of equity = 14,68%
cost of debt = 8,7% x 0,7(tax) = 6,09%
WACC = 14,68 x ……. + 6,09 x …….. ??????
How to calculate WACC???The answer says: WACC = 14,68 x (10,9 / 10,9 + 3,68) + 6,09 x (3,68 / 10,9 + 3,68) = 12,51 % but how was 10,9 and 3,68 calculated?
Please help.
Joanna- Topics: 0
- Replies: 7
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10.9
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cum-div = $2.5, div=$0.32
so, ex-div = $2.5 – $0.32 = $2.18
so, market value for equity = 5m x $2.18 = $10.93.68
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ex-interest = $92
so, market for debt = 4m x $92/$100 = $3.68Cheers,
Alf.
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