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Calculate the companys cost of equity capital

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Reference no: EM131694394

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.

Reference no: EM131694394

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