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  • Assignment WACC

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    Nicolas Ernesto
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    The document provides information to calculate the weighted average cost of capital (WACC) for two companies, Waltermart and Moto. For Waltermart, its book value of debt is $100 billion, market cap is $300 billion, beta is 0.37, interest expense is $4.7 billion, and tax rate is 30%. The cost of debt is calculated as 4.7%. For Moto, its market value of equity is $134.5 billion, book value of debt is -$34.5 billion, beta is 0.82, cost of debt is 2%, and tax rate is 26%. The document asks to calculate the WACC for each company and interpret if a 20% return for M

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    The document provides information to calculate the weighted average cost of capital (WACC) for two companies, Waltermart and Moto. For Waltermart, its book value of debt is $100 billion, market cap is $300 billion, beta is 0.37, interest expense is $4.7 billion, and tax rate is 30%. The cost of debt is calculated as 4.7%. For Moto, its market value of equity is $134.5 billion, book value of debt is -$34.5 billion, beta is 0.82, cost of debt is 2%, and tax rate is 26%. The document asks to calculate the WACC for each company and interpret if a 20% return for M

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    31 views1 page

    Assignment WACC

    Uploaded by

    Nicolas Ernesto
    The document provides information to calculate the weighted average cost of capital (WACC) for two companies, Waltermart and Moto. For Waltermart, its book value of debt is $100 billion, market cap is $300 billion, beta is 0.37, interest expense is $4.7 billion, and tax rate is 30%. The cost of debt is calculated as 4.7%. For Moto, its market value of equity is $134.5 billion, book value of debt is -$34.5 billion, beta is 0.82, cost of debt is 2%, and tax rate is 26%. The document asks to calculate the WACC for each company and interpret if a 20% return for M

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    Exercise: WACC Due date: April 20, 2021

    1. As of the end of Waltermart’s most recent quarter (Oct. 31, 2020), its book value of debt was $100
    billion. As of April 6, 2021, its market cap (or equity value) is $300 billion. Waltermart’s stock has a beta
    compared to the market of 0.37, assume that the risk-free rate is 2.7% and expected market return is
    generally estimated to be 7%. Waltermart’s recent fiscal year interest expense is $4.7 billion. Thus, its
    cost of debt is 4.7%, or $4.7 billion / $100 billion. The company’s tax rate in the annual report, said to be
    30% for the last fiscal year. What is Walmart’s weighted average cost of capital (WACC)? Please show
    your calculation.

    2. Moto’s recent market value of equity is $134.5 billion. Its book value of debt is -$34.5 billion
    (negative). Its stock has a beta of 0.82. The risk-free rate is 2.5% and market risk premium is 8%. Moto’s
    cost of debt is 2% and the recent tax rate is 26%. (1) What is Walmart’s weighted average cost of capital
    (WACC)? Please show your calculation. (2) Suppose that Moto’s yields returns after the investment is
    20%. If compare with the WACC, what does it mean?

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