Given below is some information about Apsara Ltd:Capital structure of Apsara Ltd.: Book value of Equity Share Capital = Rs. 320 million; Long-term debt outstanding = Rs. 480 million ;Beta of Company’s equity shares = 1.2; Treasury bill rate = 4%; Market risk premium = 8%; Cost of debt = 8%; Corporate tax rate = 35%; What is the company's Weighted Average Cost of Capital (WACC)?

Given below is some information about Apsara Ltd:Capital structure of Apsara Ltd.: Book value of Equity Share Capital = Rs. 320 million; Long-term debt outstanding = Rs. 480 million ;Beta of Company’s equity shares = 1.2; Treasury bill rate = 4%; Market risk premium = 8%; Cost of debt = 8%; Corporate tax rate = 35%; What is the company's Weighted Average Cost of Capital (WACC)?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter17: Multinational Capital Structure And Cost Of Capital

Section: Chapter Questions

Problem 12QA

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As a first step, we need to estimate what percentage of MMMs capital comes from debt, preferred stock, and common equity. This information can be found on the firms latest annual balance sheet. (As of year end 2014, MMM had no preferred stock.) Total debt includes all interest-bearing debt and is the sum of short-term debt and long-term debt. a. Recall that the weights used in the WACC are based on the companys target capital structure. If we assume that the company wants to maintain the same mix of capital that it currently has on its balance sheet, what weights should you use to estimate the WACC for MMM? b. Find MMMs market capitalization, which is the market value of its common equity. Using the sum of its short-term debt and long-term debt from the balance sheet (we assume that the market value of its debt equals its book value) and its market capitalization, recalculate the firms debt and common equity weights to be used in the WACC equation. These weights are approximations of market-value weights. Be sure not to include accruals in the debt calculation.
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
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The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. (rs, rd, rp, re) is the symbol that represents the cost of raising capital by issuing new stock in the weighted average cost of capital (WACC) equation. Avery Co. has $2.7 million of debt, $1.5 million of preferred stock, and $2.2 million of common equity. What would be its weight on preferred stock? 0.23 0.21 0.42 0.18