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FIN 691 Practice WACC Valuation Problem Set Answer Key 2.2.xlsx

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CALCULATING WEIGHTED AVERAGE COST OF CAPITALTax rate35.00%Cost of debt12.00%After tax cost of debt7.80%WeightRequired returnDebt30.00%7.80%Preferred stock15.00%14.00%Common equity55.00%20.00%WACC15.44%The capital structure of Emrem Co. is is comprised of 15% prferred stock, 30% debt, and 55%common stock. The required return for the preferred stock and common stock are 14% and20% repectively. The company has a tax rate of 35% and a cost of debt of 12%. Use thisinformation to calculate the WACC for Emrem Co.
FINDING THE MARKET VALUE OF DEBTMarket value of equity (in millions)$200.00Bond IssueMarket Value Today (in millions)Face Value (in millions)1$50.00 $125.002$75.00 $80.003$125.00 $150.00Total market value of debt$250.00Firm value$450.00Weight of debt55.56%Emrem Co. has a market value of equity of $200 million. It also has three outstanding bond issues with mar$50, 75, and $125, with respective face values (in millions) of $125, $80, and $150. Calculate the total markfirm value, and the weight of debt.
rket values (in millions) ofket value of the debt, the
CALCULATING THE WEIGHT OF EQUITYFinancial Information:Value:Shareholder equity (in millions)$240.00# of shares outstanding (in millions)65.5Price per share$18.25Book value of debt (in millions)$50.00Market value of debt (% of face value)90%Market value of equity$1,195.38Market value of debt$45.00Firm value$1,240.38Weight in equity96.37%Emrem Co. has the following financial information (in millions) shareholder equity of $240, book value of d

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