The following data applies to Micro Advanced Developers (MAD). Debt Equity market value of debt = $253,946 market value of...

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Finance

The following data applies to Micro Advanced Developers(MAD).
Debt Equity
market value of debt = $253,946 market value of equity = $398,965
time to maturity of debt = 6 years risk free rate = 3.9% pa
coupon rate = 5.0% pa paid semi-annually market risk premium = 7.4% pa
face value = $300,000 DDD beta = 1.06
As a financial manager you have been given the task ofcalculating the company's weighted average cost of capital (WACC).Ignore the effect of taxes.
a)Firstly, you realise that the cost of debt is needed.Calculate the cost of debt for MAD. You may give your answer as apercentage per annum to the nearest percent or use linearinterpolation or a financial calculator to give a more accurateresult.
Cost of debt =  % pa
b)Secondly, the cost of equity must also be identified.Calculate the cost of equity for MAD. Give your answer as apercentage per annum to 1 decimal place.
Cost of equity =  % pa
c)Finally, calculate the weighted average cost of capital forMAD. Give your answer as a percentage per annum to 1 decimalplace.
Weighted average cost of capital =  % pa

Debt	Equity
market value of debt = $253,946	market value of equity = $398,965
time to maturity of debt = 6 years	risk free rate = 3.9% pa
coupon rate = 5.0% pa paid semi-annually	market risk premium = 7.4% pa
face value = $300,000	DDD beta = 1.06

Answer & Explanation Solved by verified expert

4.5 Ratings (670 Votes)

a Market Value of debt 253946 Coupon rate 5 pa semi annually Face Value 300000 Coupon Amount 7500 Time to maturity 6 years There is a inverse relation See Answer

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The following data applies to Micro Advanced Developers(MAD).DebtEquitymarket value of debt = $253,946market value of equity = $398,965time to maturity of debt = 6 yearsrisk free rate = 3.9% pacoupon rate = 5.0% pa paid semi-annuallymarket risk premium = 7.4% paface value = $300,000DDD beta = 1.06As a financial manager you have been given the task ofcalculating the company's weighted average cost of capital (WACC).Ignore the effect of taxes.a)Firstly, you realise that the cost of debt is needed.Calculate the cost of debt for MAD. You may give your answer as apercentage per annum to the nearest percent or use linearinterpolation or a financial calculator to give a more accurateresult.Cost of debt = % pab)Secondly, the cost of equity must also be identified.Calculate the cost of equity for MAD. Give your answer as apercentage per annum to 1 decimal place.Cost of equity = % pac)Finally, calculate the weighted average cost of capital forMAD. Give your answer as a percentage per annum to 1 decimalplace.Weighted average cost of capital = % pa