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WACC calculate question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › WACC calculate question

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.
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  • September 23, 2020 at 6:36 pm #586476
    lawrencex
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Good afternoon, my question is I don’t know how to calculate the cost of capital of WACC. Here is the question.

    B1 100,000 bonds with coupon rate of 8% (paid semi-annually), a price quote of 120 and have 30 years to maturity. Semi-annual YTM is 3.24%.

    B2 100,000 zero coupon bonds (semi-annual compounding) with a price quote of 30 and 20 years until maturity.

    PS: 200,000 shares of 5 percent preferred stock with a current price of $70, and a par value of $100.

    Stock: 5,000,000 shares of common stock, with a price of $60, and a beta of 1.2.

    Market: The corporate tax rate is 40 percent, the market risk premium is 8%, and the risk-free rate is 3%.

    I find that the cost of capital for debt formula is (D/V)*Rd*(1-Tc), but there is no Rd and Re in the question, how could I find them? Thank you.

    September 24, 2020 at 8:54 am #586517
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54726
    • ☆☆☆☆☆

    Calculating the cost of capital is not in the syllabus for Paper FA – it is nothing to do with financial accounting.

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  • The topic ‘WACC calculate question’ is closed to new replies.

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