Berkshire Instruments

A correct response requires that you find an appropriate industry beta and measure for levered/unlevered betas and requires that you define cost of equity capital and free cash flow (FCF) – you may need a formula for FCF.

The WACC calculation should include all the sources of capital like common stock, preferred stock, bonds and any other long-term debt.

WACC= (%of debt) (after-tax cost of debt) + (% of preferred stock)(Cost of preferred stock) + (% of common equity) (Cost of common equity)

a. Weighted Average Cost of Capital- most firms employ different types of capital, and because of their differences in risk, the difference securities have different required rates of return. Typically=debt, preferred stock and common equity.

- The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.30 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1,000. This bond is currently selling for 93 percent of its face value. What is the company's pre-tax cost of debt?

This assignment will calculate the Weighted Average Cost of Capital of AGL Energy Ltd and gearing, as well as analysing the capital structure of the company. Through this, recommendations can be given to the firm to increase and better manage capital and how it is used. The Weighted Average Cost of Capital (WACC) is a calculation of a firm 's cost of capital. It is the average costs of debt and equity financing, each of which is weighted by its proportional

WACC = cost of debt + cost of equity (weighted by the % of debt/equity in the capital stack)

The Capital Assets Price Model (CAPM), is a model for pricing an individual security or a portfolio. Its basic function is to describe the relationship between risk and expected return, which is often used to estimate a cost of equity (Wikipedia, 2009). It serves as a model for determining the discount rate which is used in calculating net present value. The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. The formula is:

When we calculate those number, we need to know the equity and debt of the company which can easily find on yahoo finance. The cost of debt and the corporate tax rate that we calculated are also based on the data from yahoo finance. We made Beta for the companies with 10 year ranges and use it to calculate return of equity. After we got those number, we can calculate the WACC.

WACC = cost of debt + cost of equity (weighted by the % of debt/equity in the capital stack)

1. How firms estimate their cost of capital: The WACC for a firm is 13.00 percent. You know that the firm’s cost of debt capital is 10 percent and the cost of equity capital is 20% What proportion of the firm is financed with debt?

Explain how the cost of debt, cost of equity, and weighted average cost of capital are determined.

» The WACC can be used throughout the firm as the companywide cost of capital for new investments that are:

The Weighted Average Cost of Capital (WACC) is the rate at which the firm is expected to pay for capital raised by issuing debt and equity to finance its assets. It is the minimum return that the company should earn to satisfy the needs of the debt holders and shareholders of the company. It is calculated by proportionally weighing each category of capital such as common stock, preferred stock, long term and short term debts, bonds etc. It is the discount rate used to calculate the present value of the future cash flows when the risk pertaining to that particular cash-generating unit is similar to that of the overall firm

Weighted Average Cost of Capital (WACC) is a fiscal barometer to gauge a business cost of capital. In this sense, the WACC supplies at discount