Google currently has a 5 million common shares outstanding, and a 1 million preferred shares outstanding,...

Google currently has a 5 million common shares outstanding, and a 1 million preferred shares outstanding, and 100,000 bonds outstanding. Calculate Google Weighted Average Cost of Capital (WACC) if the corporate tax rate is 35%. (Using excel and making formulas viewable)

The average cost of equity of Google is 19.04%.

The cost of Google’s preferred stocks if it is currently priced at $100 is 6%.

The pre-tax cost of debt of Google is 6.85%.

Expert Solution

WACC = Cost of Equity * %Equity + Cost of Debt * (1 - tax rate) * %Debt + Cost of Preferred Stock * %Preferred Stock

Particular	No. of Shares/Bonds	%Cost	Calculation	WACC (%)
Common Shares	5,00,000	19.04%	19.04% * (500,000/700,000)	13.60
Preferred Stock	1,00,000	6.00%	6% * (100,000/700,000)	0.86
Bonds	1,00,000	6.85%	6.85% * (1 - 0.35) * (100,000/700,000)	0.64
	7,00,000		WACC	15.09

Therefore, WACC is 15.09%

jeff jeffy answered 2 years ago

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Google currently has a 5 million common shares outstanding, and a 1 million preferred shares outstanding,...

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