Hi Can someone check to see if my WACC calculation makes sense? Thank you! CAPM
ID: 2349991 • Letter: H
Question
Hi Can someone check to see if my WACC calculation makes sense?Thank you!
CAPM
Rf= Risk Free ( Src: 10 Year Treasury Bond Yield): 1.812
RPm= Risk Premium ( Src: Market Suggested) 5%
Be= Beta (Soure: Yahoo Finance) 0.97
CAPM = Re = Rf + Be (RPm)
= 1.812 + .97(5)
=1.82 + 4.85
=6.67
WACC Calculation
RE = CAPM = Cost of Equity - 6.67
RD = Bond YTM (Src: Morning Star)= AT Cost of Debt - 2.70%
RP= Cost of Preferred Stock - 0 N/A
TC = Tax Rate (Src: Standard Corporate Tax) - 35% = .35
wE = E/V = percent financed with equity (Src: MorningStar) - 90.1% = .901
wD = D/V = percent financed with debt - (Src: MorningStar) - 9.9% = .0099
wp = P/V = percent financed with preferred - 0% N/A
WACC = wERe + wDRd(1-TC) + wPRp
= .901(6.67)+ .0099(2.7*.65)
=(.901*(.0667))+ (.0099(.027*.65))
0.060270445
Explanation / Answer
this is the right solution