Let us take an example of a company DCF Inc. to illustrate the computation of WACC.

During FY19, th
1 generated a return of ~5.5%.  As per the latest annual report, the company has an outstanding debt of $5
valued at $70.0 million. During that period the company has incurred $2.0 million as interest expense on
the risk-free rate of return is 1.5%, the market return is 4.0% and the company’s beta is 1.2x. Calculate W
information and check whether the investment return of 5.5% exceeds its cost of capital if the tax rate is
 tation of WACC. During FY19, the company’s real estate investment 
pany has an outstanding debt of $50.0 million and common equity 
$2.0 million as interest expense on its debt. On the other hand, 
ompany’s beta is 1.2x. Calculate WACC based on the given 
its cost of capital if the tax rate is 32%.
Preffered Equity 75000
Common Equity 240000
Debt 230000
Int Ex 12000
Tax 23%
RF 2%
Beta 1.1
Rm 11%
Price 96
Div 4
Equity 240000 240000
Debt 230000 230000
Int Ex 4000
Tax 23%
RF 2%
Beta 1.1
Rm 11%
Let us take an example of a company DCF Inc. to illustrate the computation of WACC. During FY1
generated a return of ~5.5%.  As per the latest annual report, the company has an outstanding de
valued at $70.0 million. During that period the company has incurred $2.0 million as interest expe
the risk-free rate of return is 1.5%, the market return is 4.0% and the company’s beta is 1.2x. Calc
information and check whether the investment return of 5.5% exceeds its cost of capital if the ta

total debt 50000000

total equity 70000000 2.72%
interest expen 2000000 4.50%
taxe rate 32%
return free ret 1.50%
beta 1.2 0.416666667
market return 4% 0.583333333

The investment's return of 5.5% exceeds the cost of capital which is 3.76% after payement of tax

Column1 pre tax

int exp 4000 debt 0.017391304
debt 230000 equity
tax 23% 470000
rf 2%
beta 1.1
rm 11%
equty 240000

cost of preferred equity=dividend/price of one share

preferred equi 75000 Column1 pre tax

int exp 12000 debt 0.027906977
debt 430000 common e
tax 23% preference e
rf 2%
beta 1.1 545000
rm 11%
equty 40000
price 96
div 4

issuing new equity is costlier than getting money from debtholders

e computation of WACC. During FY19, the company’s real estate investment  
, the company has an outstanding debt of $50.0 million and common equity  
incurred $2.0 million as interest expense on its debt. On the other hand,  
and the company’s beta is 1.2x. Calculate WACC based on the given  
% exceeds its cost of capital if the tax rate is 32%.

wacc 3.76%

which is 3.76% after payement of tax of 32%

cost of capitsl weigytage net cost

1.34% 48.94% 0.66%
11.90% 51.06% 6.08%
Wacc 6.73%

cost of capital wightage net cost

2.15% 78.90% 1.70%
11.90% 7.34% 0.87%
4.17% 13.76% 0.57%
WACC 3.14%
an getting money from debtholders