How to calculate WACC. Please provide your solutions for the following example.
The following financial statement data pertains to Southwater, Inc., a manufacturer of women's suits (dollar amounts in millions):
| Total Assets |
$154,287 |
| Interest-Bearing Debt |
$33,984 |
| Average Pre-tax borrowing cost |
7.75% |
| Common Equity: |
|
| Book Value |
$21,365 |
| Market Value |
$66,735 |
| Income Tax Rate |
39.60% |
| Market Equity Beta |
0.77 |
| Market Premium |
7.45% |
| Risk-free interest rate |
2.50% |
Required:
a. Calculate the company's cost of equity capital.
b. Calculate the weight on debt capital that should be used to determine Southwater's weighted-average cost of capital.
c. Calculate the weight on equity capital that should be used to determine Southwater's weighted-average cost of capital.
d. Calculate Southwater's weighted-average cost of capital.