Calculate the cost of equity for mad

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Reference no: EM133011163

Debt                                                                                           Equity
market value of debt = $189,840                                 market value of equity = $533,762
time to maturity of debt = 10 years                             risk free rate = 3.5% pa
coupon rate = 2.9% pa paid semi-annually market           risk premium = 8.3% pa
face value = $300,000                                                 DDD beta = 1.15

As a financial manager you have been given the task of calculating the company's weighted average cost of capital (WACC). Ignore the effect of taxes.

Problem 1: Firstly, you realise that the cost of debt is needed. Calculate the cost of debt for MAD. You may give your answer as a percentage per annum to the nearest percent or use linear interpolation or a financial calculator to give a more accurate result.

Problem 2: Secondly, the cost of equity must also be identified. Calculate the cost of equity for MAD. Give your answer as a percentage per annum to 1 decimal place.

Problem 3: Finally, calculate the weighted average cost of capital for MAD. Give your answer as a percentage per annum to 1 decimal place.

Reference no: EM133011163

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