Financial Concepts
Your calculated WACC. ( Market value of equity and debt are given in thousands)
Risk-Free Rate
Beta
Expected return on the market
Credit Spread
Market value of equity
Market value of debt
Marginal Tax Rate
Percentage of Debt
in capital structure
Percentage of Equity
in capital structure
Cost of Equity = 8.80%
Capital Asset Pricing Model Formula (Cost of Equity)
RF + Beta (Market Risk Premium)
Cost of Debt Formula
Risk Free Rate + Credit Spread
Cost of Debt= 5.0%
Weighted Average Cost of Capital (WACC)
Cost of debt (1- tax rate) * Percentage of debt + Cost of Equity* Percentage of equity
How data was used to calculate WACC. This would be the formula and the formula with your values substituted.
WACC = (E/E+D) rE + D/(E+D) rD (1-TC)
(5% * (1- .4)) * 14.29% + (8.80%* 85.71%) = 7.971%
Sources for your data
Sources of the WACC are found in annual reports and other sec filings. The WACC is used as a mechanism to discount free cash flows or to derive the cost of money for a particular firm. The WACC is very sensitive to changes in the overall estimates used. A 100 basis...
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