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WACC

The document provides calculations for the Weighted Average Cost of Capital (WACC) for a company with various capital structures, including equity, debt, and preference capital. The WACC is determined to be 5.46%, indicating the minimum return the company must generate to satisfy its investors. Additionally, it includes specific financial details such as dividends, coupon rates, and corporate tax rates affecting the WACC calculation.

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niharikasrivastava.2023
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5 views

WACC

The document provides calculations for the Weighted Average Cost of Capital (WACC) for a company with various capital structures, including equity, debt, and preference capital. The WACC is determined to be 5.46%, indicating the minimum return the company must generate to satisfy its investors. Additionally, it includes specific financial details such as dividends, coupon rates, and corporate tax rates affecting the WACC calculation.

Uploaded by

niharikasrivastava.2023
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Amt Invested Profit Earned

40rs 1rs Market price per share/EPS


100rs x
x= 2.5

Calculate WACC considering the below details:


The company has 5M equity capital with the share price being 1000rs
The company has declared 20rs dividend this year, which is expected togrow at 5% per year perpetually
The company has 4M debt (bond) issued 2 years ago with a total maturity of 8 years, FV of 1000rs, carrying a coupon of 6%
traded at a discount of 2%, redeemable at a premium of 1%, corporate tax is 30%
The company has preference capital of 3M at 4% issued 3 years ago witth 5 years left for maturity veing traded in today's mar
at a discount of 4%, redeemable at a premium of 2%, FV is 1000rs
The company has taken 2M loan at 4.5%

Ke 7.10% Kd 4.72% Kp 5.25%

RV 1010 Pdiv 40
SV 980 RV 2% 1020
I 60 SV 4% 960
N 6 FV 1000
Tax 30% N 5
FV 1000

Conclusion: From the above calculations, we infer that the WACC of the company is 5.46%, means that the company has to

Calculate WACC considering the following:


Company has 3M retained earnings and equity 8M, Debt 7M, Pref Cap 6M, Loan 5M
Equity: Traded at 420, dividend to be declared in the next pd is 5rs, expected to grow at 4% perpetually
Debt: FV 100rs, issued at a discount of 4%, redeemable at a discount of 1%, 9 years left for maturity, corporate tax being 27%,
Pref Cap FV 1000rs, issued at a discount of 4%, redeemable at a premium of 1%, carrying a dividend payout percentage of 4.2%
Loan: Company has taken a corporate loan at 6.2%

Ke 5.19% Kd 3.34% Kp 4.90%

Amount 8M I 4 Pdiv 42
Value 420 RV 99 RV 1010
G 4% SV 96 SV 960
D1 5 Tax 27% FV 1000
N 9 N 8
Ke=D1/P0+G Kl=Ki(1-T)
Ke=D0(1+G)/P0+G
perpetually
000rs, carrying a coupon of 6% YTM= I(1-T)+((RV-SV)/N)/((RV+SV)/2)

turity veing traded in today's market Kp=Pdiv+((RV-SV)/n)/((RV+SV)/2)

Cost of Loan 3.15% Sources of Capital Amount Weight Cost

Loan Interest 4.50% Equity 5000000 0.357143 7.1


Debt 4000000 0.285714 4.72
Pref Cap 3000000 0.214286 5.25
Loan 2000000 0.142857 3.15
Total 14000000

, means that the company has to generate a minimum of 5.46% so as to keep all the different types of investors happy.

perpetually
maturity, corporate tax being 27%, coupon rate of 4%
ividend payout percentage of 4.2%, issued 2 years ago with a total maturity of 10 years
WACC=weight*Cost

2.53571428571429
1.34857142857143
1.125
0.45
5.45928571428571

of investors happy.

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