Carly and Me, Inc. is an MNC located in the U.S. that makes mother and daughter
ID: 2796805 • Letter: C
Question
Carly and Me, Inc. is an MNC located in the U.S. that makes mother and daughter look alike dolls that are very popular with parents. Carly would like to estimate its weighted average cost of capital. On average, bonds issued by Carly and Me yield 9 percent. Currently, Treasu Carly's stock has a beta of 1.5, and the return on the Wilshire 5000 stock index is expected to be 10 percent. Carly's target capital structure is 30 percent debt and 70 percent equity. If Carly and Me is in the 35 percent tax bracket, what is Carly's weighted average cost of capital? ry security rates are 3 percent. Furthermore,Explanation / Answer
WACC = Wd x Kd + We x Ke Wd = Weight of debt = 0.3 We = Weight of equity = 0.7 Kd = Cost of debt = Post tax interest rate = 9 x (1-0.35)= 5.85 Ke = Cost of equity = = Rf + (Rm-Rf) x Beta = Rf = 3 Rm= 10 Beta = 1.5 Ke = 3 + (10-3) x 1.5 = 13.5 Wacc = Security Weight Cost Weight x Cost Debt 0.3 5.85 1.755 Equity 0.7 13.5 9.45 11.205 Wacc = 11.205 % Please provide feedback…. Thanks in advance…. :-)