Question 6 2014 April A quoted company’s statement of financial position shows equity shares worth £10m, retained earnings of £20m and non-current liabilities in the form of a £15m nominal loan paying 7% pa interest. The shares have a total market value of £48m and the non-current liabilities have a market value of £18m. The company’s cost of equity has been determined as 17% and the cost of debt as 8%. What is the company’s weighted average cost of capital? can I get the detailed calculation of this question ?
Hi Formula for WACC = Proportion of debt in company's capital structure x cost of debt + proportion of equity in company's capital structure x cost of equity For the proportion's of debt and equity it's generally preferred to use market values (rather than book values). So, we only use the market value from the question, not the accounting values. This gives : 18/66 x 8% + 48/66 x 17% Hope this helps Lynn
