# Calculation Of Weighted Average Cost Of Capital

Question

The Wishing Well hotel chain has a short-term bank loan with a book value of \$40million and has issued bonds with a book value of \$200 million. The book value of the firm’s equity (net worth) is equal to \$400 million. The interest rate the firm pays on the bank debt equals 8% and the yield on the bonds equals 10%. Wishing Well has 10 million shares outstanding at a price of \$90 per share. The current required return on equity is 18%. If we assume that the marginal tax rate for Wishing Well equals 35%, what is Wishing Well’s WACC? Motivate your approach and show your calculations (hint: since the firm has two different types of debt outstanding, you can calculate the weighted average of the cost of debt first before using the WACC formula).

Summary

The question belongs to Finance and it discusses about calculation of weighted average cost of capital.

Total Word Count 101

• Rasha

this is a very good website

• maani

I have 50 questions for the same test your page is showing only 28

• joeanne

• joeanne

hi can anyone help or guide me to my assignments. thanks

• Monik

• Cristina

This solution is perfect ...thanks

• Janete

Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

• Sandeep

Perfect bank of solution.

• Oxana

great !

• Paul Brandon-Fritzius

thanks for the quick response. the solution looks good. :)

• tina Johnson

thnx for the answer. it was perfect. just the way i wanted it.

• Giuseppe

works fine.