Calculate WACC. Risk-free rate = 5%, expected market return = 10%, beta = 1.2, country risk spread = 1%, cost of debt is either an 8% coupon or a 10% YTM, and the capital structure is 50% debt / 50% equity. Assume a 20% tax rate.

Question

IBPrep · Accepted Answer

2 x (10% - 5%) + 1% = 5% + 6% + 1% = 12%.

Cost of debt: use the YTM (the market rate), not the coupon, so 10% pre-tax.

Calculate WACC. Risk-free rate = 5%, expected market return = 10%, beta = 1.2, country risk spread = 1%, cost of debt is either an 8% coupon or a 10% YTM, and the capital structure is 50% debt / 50% equity. Assume a 20% tax rate.

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