Solution Library

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

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

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

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

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

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    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

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

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

  • HWA
    tina Johnson

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

  • HWA
    Giuseppe

    works fine.