## Answers

D/A = D/(E+D) |

D/A = 0.5/(1+0.5) |

=0.3333 |

Weight of equity = 1-D/A |

Weight of equity = 1-0.3333 |

W(E)=0.6667 |

Weight of debt = D/A |

Weight of debt = 0.3333 |

W(D)=0.3333 |

Cost of equity |

As per CAPM |

Cost of equity = risk-free rate + beta * (expected return on the market - risk-free rate) |

Cost of equity% = 3 + 1.5 * (12 - 3) |

Cost of equity% = 16.5 |

Cost of debt |

K = N |

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k] + Par value/(1 + YTM)^N |

k=1 |

K =10 |

1100 =∑ [(5*1000/100)/(1 + YTM/100)^k] + 1000/(1 + YTM/100)^10 |

k=1 |

YTM = 3.7805241351 |

After tax cost of debt = cost of debt*(1-tax rate) |

After tax cost of debt = 3.7805241351*(1-0.25) |

= 2.835393101325 |

WACC=after tax cost of debt*W(D)+cost of equity*W(E) |

WACC=2.84*0.3333+16.5*0.6667 |

WACC =11.95% |

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