10. Elemental is interested in estimating its WACC for its upcoming strategic planning sessions.
Elemental has the following balance sheet and market information available:
($ x 1000)
Current Assets
35,000
Current Liabilities
10,000
Fixed Assets
55,000
Long term Debt
35,000
Common Equity:
Common stock (par $1)
1,500
Paid in Capital
4,500
Total Assets
90,000
Retained earnings
39,000
Total Liab. & Equity
90,000
Current Market Rates:
Current Market Prices & Other Info:
Risk Free Rate
3.55%
Stock price:
$55
Market Risk Premium
5.50%
Debt Price
$905
Debt YTM
11%
tax rate
35%
Yahoo Beta
1.85
The current liabilities consist entirely of accounts payable and accruals. The long term debt
consists of 35,000 semiannual bonds, each with a par value of $1,000.
Determine the weighted average cost of capital for Elemental. Show the details of each
component calculation in the space indicated below, identifying inputs and steps.
What is the best estimate of the after-tax cost of debt to the firm? Show all steps & inputs.
After tax cost of Debt = \underline{\qquad\qquad} \qquad (1 - Tax \text{ } rate) + YTM
Based upon the CAPM, what is the firm's cost of common stock? Show all steps & inputs.
$R^e = \underline{\qquad\qquad}$
Estimate the weights of debt and equity for use in calculating the firm's WACC? Show all steps & inputs.
$W_d = \underline{\qquad\qquad} \qquad \frac{B}{S + B}$
$W_e = \underline{\qquad\qquad} \qquad \frac{S}{S + B}$
What is your estimate of the firm's WACC? Show all steps & inputs.
WACC = \underline{\qquad\qquad}
