WACC example

Equity information
# shares outstanding
Share price
Beta
Market risk premium
Risk-free rate

Debt information
Face value
Current quote
Coupon rate
# coupons / year
Maturity

50 million
80
1.15
9%
5%

Cost of equity?
Re = Rf + beta * market risk premium

Tax rate
$1.000 billion
110
9%
2
15 years

15.3500%

Pre-tax cost of debt? Need the YTM on the firm's bonds:

This example shows that instead of using the price of ONE bond and the coupon paid on ONE bond,
you can use the MV of ALL the bonds combined and the coupon paid on ALL the bonds combined
MV of the bonds = BV of the bonds * current quote
Coupon paid on ALL the bonds = (coupon rate / 2) * BV of bonds
PV
pmt
FV
n

$1.100 billion
$0.045 billion

$1.100 billion
$0.045 billion
$1.000 billion
30 semi-annual periods

Semi-annual YTM
Annual YTM

3.927%
7.854%

Capital structure weights?

E: MVE = # shares outstanding * share price
D: MV of debt

$4.000 billion
$1.100 billion

D+E:

$5.100 billion

MVE + MVD

WACC?
WACC = Re * (E / (D+E)) + Rd * (1-T) * (D / (D+E))

13.06%

40%