In: Finance
Using market value and book value (separately), find the adjusted WACC, using 30% tax rate. Component Balance Sheet Value Market Value Cost of Capital TAX Debt 5,000,000.00 6,850,000.00 8% 30% Preferred Stock 4,000,000.00 2,200,000.00 10% Common Stock 2,000,000.00 5,600,000.00 13% ANSWER Book Value Weights Market Value Weights Adjusted WACC Debt Debt Market Value Preferred Stock Preferred Stock Book Value Common Stock Common Stock
a)8.55% | ||||
Statement showing computation basis book Value | ||||
Particulars | Book Value | Weight | Cost | WACC |
Long term Debt | 5,000,000.00 | 0.4545 | 5.60% | 2.55% |
Preferred stock | 4,000,000.00 | 0.3636 | 10.00% | 3.64% |
Common Stock Equity | 2,000,000.00 | 0.1818 | 13.00% | 2.36% |
11,000,000.00 | 1.0000 | 8.55% | ||
b) WACC is 9.09% | ||||
Statement showing computation basis market Value | ||||
Particulars | Market Value | Weight | Cost | WACC |
Long term Debt | 6,850,000.00 | 0.4676 | 5.60% | 2.62% |
Preferred stock | 2,200,000.00 | 0.1502 | 10.00% | 1.50% |
Common Stock Equity | 5,600,000.00 | 0.3823 | 13.00% | 4.97% |
14,650,000.00 | 1.0000 | 9.09% |