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Allergan (AGN): corporate tax rate = 12.5% cost of debt = 3.4867% cost of preferred stock...

Allergan (AGN):

corporate tax rate = 12.5%

cost of debt = 3.4867%

cost of preferred stock = 13.75/161.62 (1-0.055) = 9%

cost of common equity = 8.28%

capital structure =

Total Debt to Total Equity = 40.74

Total Debt to Total Capital = 28.95

Total Debt to Total Assets = 25.41

Interest Coverage = -0.26

Long-Term Debt to Equity = 37.51

Long-Term Debt to Total Capital = 24.87

Long-Term Debt to Assets = 0.22

Determine the weighted average cost of capital (WACC) for Allergan (AGN). Create an Excel spreadsheet where you explain how you calculated those numbers and what was your reasoning. Use the WACC as the discount rate to conduct capital budgeting analysis for a project that the firm is considering and then decide whether it should be accepted or not which is “ Building a new Building” for $1 million. Include the financial statements you used or other documents to get those numbers. If you do not have a number you need, research it and state your assumptions that you used to get the missing number.

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Expert Solution

Answer :-

Given

Total Debt to Total Equity = 40.74

Total Debt to Total Capital = 28.95

Total Debt to Total Assets = 25.41

Let assume total Capital is 100 then

if total debt / total capital = 28.95 there fore total debt is 28.95

then total equity is find out by total capital - total debt = 100 - 28.95 = 71.05

then , Total Debt to Total Assets = 25.41 there fore total assets is 28.95/25.41% = 113.93

Long-Term Debt to Total Capital = 24.87 therefore long term debt is 24.87

therefore short term debt is = total debt - long term debt = 28.95-24.87 = 4.08

Long-Term Debt to Equity = 37.51 therefore equity = 24.87/37.51% =

Equity = 66.30

then prefrence share capital is total equity - equity = 71.05 - 66.30 = 4.75

Column1 Value Weights Cost Cost after tax Cost*Weights
Equity 66.3 0.663 8.28% 8.28% 5.49%
Prefrence 4.75 0.0475 9% 9% 0.43%
Debt 28.95 0.2895 3.49% 3.05% 0.88%
total capital 100
Therefore weighted avg cost of capital = 6.80%

jeff jeffy answered 2 years ago
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