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I have one question about WACC Cal.
Market value of equity, $6500
Market value of debt, $1000 (Bank term loan, 5% interest per year)
Tax = 30%New project needs capital around $2000, raise through bond, market value per bond is $110. Both the value above does not including this $2000.
1) When we are calculating the WACC, we need to include the $2000 x (110/100) into the mv of debt right?
2) Besides, i need to find kd(1-T) for the bond. But, how is the treatment for the term loan?
Thanks.
Use the formula {100* (1+r)^n = 110} to find out the KD for the Bond.
for bank term loan, you may assume that debt is risk free and use the Rf rate as KD.
using the KDs above, calculate the weighted average KD for the overall debt
use the weighted average KD *(1-T) to find out the WACCASSUMPTIONS:
1) No information about coupon is available so it is assumed it is a Zero Coupon Bond.
2) Bank term loan value assumed equals its carrying value.
3) Debt is risk free therefore risk free rate of return is used
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