Calculate WACC. Risk-free rate = 3%, expected market return = 8%, beta = 0.8, country risk spread = 0%, cost of debt is either a 6% coupon or a 8% YTM, and the capital structure is 50% debt / 50% equity. Assume a 25% tax rate.

Question

IBPrep · Accepted Answer

8 x (8% - 3%) + 0% = 7%.

Cost of debt: use the YTM (the market rate), not the coupon, so 8% pre-tax.

Calculate WACC. Risk-free rate = 3%, expected market return = 8%, beta = 0.8, country risk spread = 0%, cost of debt is either a 6% coupon or a 8% YTM, and the capital structure is 50% debt / 50% equity. Assume a 25% tax rate.

Answer

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