The company is facing higher risk
Added on 2022-09-14
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Running head: COST OF CAPITAL
Cost of Capital
Name of the Student:
Name of the University:
Author Note:
Cost of Capital
Name of the Student:
Name of the University:
Author Note:
COST OF CAPITAL1
Table of Contents
Answer to Question 1:................................................................................................................3
Answer to Question 2:................................................................................................................3
Part a:.....................................................................................................................................3
Part b:.....................................................................................................................................3
Part c:.....................................................................................................................................4
Part d:.....................................................................................................................................4
Answer to Question 3:................................................................................................................5
Part a:.....................................................................................................................................5
Part b:.....................................................................................................................................5
Part c:.....................................................................................................................................5
Part d:.....................................................................................................................................6
Part e:.....................................................................................................................................6
Answer to Question 4:................................................................................................................6
Part a:.....................................................................................................................................6
Part b:.....................................................................................................................................6
Answer to Question 5:................................................................................................................7
Part a:.....................................................................................................................................7
Part b:.....................................................................................................................................7
Part c:.....................................................................................................................................7
Part d:.....................................................................................................................................7
Part e:.....................................................................................................................................8
Table of Contents
Answer to Question 1:................................................................................................................3
Answer to Question 2:................................................................................................................3
Part a:.....................................................................................................................................3
Part b:.....................................................................................................................................3
Part c:.....................................................................................................................................4
Part d:.....................................................................................................................................4
Answer to Question 3:................................................................................................................5
Part a:.....................................................................................................................................5
Part b:.....................................................................................................................................5
Part c:.....................................................................................................................................5
Part d:.....................................................................................................................................6
Part e:.....................................................................................................................................6
Answer to Question 4:................................................................................................................6
Part a:.....................................................................................................................................6
Part b:.....................................................................................................................................6
Answer to Question 5:................................................................................................................7
Part a:.....................................................................................................................................7
Part b:.....................................................................................................................................7
Part c:.....................................................................................................................................7
Part d:.....................................................................................................................................7
Part e:.....................................................................................................................................8
COST OF CAPITAL2
Answer to Question 6:................................................................................................................8
Part a:.....................................................................................................................................8
Part b:.....................................................................................................................................8
Part c:.....................................................................................................................................8
Part 7:.........................................................................................................................................9
Part 8:.........................................................................................................................................9
Part 9:.........................................................................................................................................9
Bibliographies:.........................................................................................................................11
Answer to Question 6:................................................................................................................8
Part a:.....................................................................................................................................8
Part b:.....................................................................................................................................8
Part c:.....................................................................................................................................8
Part 7:.........................................................................................................................................9
Part 8:.........................................................................................................................................9
Part 9:.........................................................................................................................................9
Bibliographies:.........................................................................................................................11
COST OF CAPITAL3
Answer to Question 1:
The cost of debt, cost of equity and cost of preferred stock should be used in the
calculation of the WACC of the company. The after tax value of the cost of debt should be
used in the calculation of the WACC as debt provides an interest rate tax shield, which
reduces the cost of capital. The new values should be used in the calculation of WACC as the
change in the risk of the company is incorporated in the new values which is not present in
the historical value.
Answer to Question 2:
Part a:
The book value of the debt, preferred stock and common stock is provided in the
below table,
Debt 61.2
Preferred Stock 15
Common Stock 79.5
Part b:
The market value of the debt, preferred stock and common stock is provided in the
below table,
Security Market Price No of Units Market Value
Debt 891 61200000/1000 =
61200 units
=61200*891 =
54529200
Preferred Stock 104 15000000/100 = 150000*104 =
Answer to Question 1:
The cost of debt, cost of equity and cost of preferred stock should be used in the
calculation of the WACC of the company. The after tax value of the cost of debt should be
used in the calculation of the WACC as debt provides an interest rate tax shield, which
reduces the cost of capital. The new values should be used in the calculation of WACC as the
change in the risk of the company is incorporated in the new values which is not present in
the historical value.
Answer to Question 2:
Part a:
The book value of the debt, preferred stock and common stock is provided in the
below table,
Debt 61.2
Preferred Stock 15
Common Stock 79.5
Part b:
The market value of the debt, preferred stock and common stock is provided in the
below table,
Security Market Price No of Units Market Value
Debt 891 61200000/1000 =
61200 units
=61200*891 =
54529200
Preferred Stock 104 15000000/100 = 150000*104 =
End of preview
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