Reference no: EM131130404
Cost of Capital Worksheet
1. What is the market interest rate on XYZ's debt and its component cost of debt?
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Coupon rate
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12%
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Coupons per year
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2
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Years to maturity
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15
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Price
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$1,153.72
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Face value
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$1,000
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Tax rate
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40%
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2. What is the firm's cost of preferred stock?
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Nominal dividend rate
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10%
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Dividends per year
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4
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Par value
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$100
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Price
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$111.10
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3. What is XYZ's estimated cost of common equity using the CAPM approach?
4. What is the estimated cost of common equity using the DCF approach?
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Price
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$50
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Current dividend
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$4.19
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Constant growth rate
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5%
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5. What is the bond-yield-plus-risk-premium estimate for XYZ's cost of common equity?
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"Bond yield + RP" premium
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4%
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market interest rate onXYZ's debt
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10%
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6. What is your final estimate for rs?
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METHOD
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ESTIMATE
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CAPM
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14.20%
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DCF
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13.80%
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rd + RP
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14.00%
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7. XYZ estimates that if it issues new common stock, the flotation cost will be 15%. XYZ incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost?
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% Flotation cost
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15%
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Net proceeds after flotation
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$42.50
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8. What is XYZ's overall, or weighted average, cost of capital (WACC)? Ignore flotation costs.
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wd
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30%
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rd (1-T)
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6.00%
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wp
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10%
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rp
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9.00%
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wc
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60%
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rs
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14.00%
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