Show all your works here. Clark company has a capital structure that consists of
ID: 2725930 • Letter: S
Question
Show all your works here. Clark company has a capital structure that consists of 70% common stock and 30% long-term debt. In order to calculate Clark's WACC, an analyst has accumulated the following information: The company currently has 15-year, 8% annual coupon bonds that have a face value of $1,000 and sell for $1,075. The risk-free rate is 5%. The market risk premium is 4%. The beta on Clark's common stock is 1.1 The company's retained earnings are sufficient so that they do not have to issue any new common stock to fund capital projects. The company's tax rate is 38%. Given this information, what is Clark's WACC? Answer here, not on the Scantron sheet.Explanation / Answer
## We = weight of common stock(Equity)
Wd = Weight of Debt
W = total weight
Ke = cost of common stock(Equity)
Kd = Cost of debt
WACC = Ke*We/W + Kd(1-tax)*Wd/W = 0.0335*70/100+0.08(1-0.38)*30/100 = 0.03833 Ke = Rf+B*(Rm-Rf) = 5% + 1.1*(4%-5.5%) = 0.0335