Re: ::: vuaskari.com ::: WACC calculation query!!

salam,
kindly can you tell me the formula which u used to solve the gdb.

On 3 July 2011 14:30, serious sahar <serious.sahar6@gmail.com> wrote:
> Answer. 1 Cost of common cost is =13.5%
>
> Answer. 2 WACC=8.991%
>
> On Sun, Jul 3, 2011 at 12:35 PM, crazi <krazeekhan@gmail.com> wrote:
>>
>> fizza baji, hafiz salman bhai, and other vu members,
>> could u pleasee attempt this question as i am unable to do it, or just
>> explain it to me.
>> acc501
>> T & S manufacturer is interested to measure its overall cost of capital.
>> Firm raised capital through long term debt and Common Stocks. Weights of
>> capital structure components are 45% for long term debt and 55% for common
>> stocks. The firm is in the 40% tax bracket.
>>
>> Common Stock: the firm's common stock is currently selling Rs. 500 per
>> share. The firm expects to pay cash dividend Rs. 37.5 per share next year.
>> The firm dividend has been growing at an annual rate of 6% and this rate is
>> expected to continue in the future.
>> Long term Debt: Firm raised capital by issuing 10 years bonds at par value
>> Rs. 1,000 with 8% coupon rate (coupons are paid annually). Bond is traded at
>> Rs. 900 in market. Cost of debt after tax is 5.80 %.
>>
>> You are required to answer the following:
>> 1. Cost of Common Stock (Provide your answer in percentage and up to two
>> decimal)
>> 2. WACC (Provide your answer in percentage and up to two decimal)
>>
>> 2011/7/2 Fizza Dastgir <mc090405569@vu.edu.pk>
>>>
>>> I posted on MDB as well but did not get any answers: I am attaching my
>>> query please comment:
>>>
>>> On page 151 there is a numerical example regarding calulation of WACCL
>>> and rE,L and a table is given under whose row #4 in which debt value is
>>> Rs.400 should be the answer to the numerical question. but answer i am
>>> getting through calculations for rE,L and WACCL even NI is different from
>>> the table. I am attaching the question and the formulae given on page 150
>>> please send me the calculations, as I am not grasping it right.
>>>
>>> Thanks.
>>>
>>> A 100% Equity Firm (or Un-levered) has Total Assets of Rs.1000. It has a
>>> WACCU of 21% and
>>> rD,U of 10%. It then adds Rs.400 of Debt. Financial Risk increases rD,L
>>> of Levered Firm to 13%. What is
>>> the Levered Firm's rE,L and WACCL ? Tax rate is 30%.
>>>
>>> (PLEASE SEE THE TABLE ON PAGE 151, AS ITS NOT BEING COPIED)
>>>
>>> Formulae:
>>>
>>> E = NI / rE,L
>>>
>>> NI = (EBIT - xD rD) (1 - Tc)
>>>
>>> rE,L = WACCU + xD (WACCU - rD ) (1 - Tc).
>>>
>>> Traditionalists Formula for WACC:
>>> WACCL = xD rD (1 - Tc) + xE rE.
>>>
>>> Please send me the detailed calculation for the above question as I am
>>> unable to calculate.
>>>
>>> Another issue to be noticed is that the TAX SHIELD APPROACH given on page
>>> 153 claims that it gives the same result as the NI APPROACH but when i trie
>>> dto solve the numerical given on page 152 it gave different results from NI
>>> Approach solved on page 152-153. can you please clarify why is that so?
>>>
>>> For Example:
>>>
>>> – If the Firm takes Rs.100 Debt at 10% Interest or Mark-up then what is
>>> the WACCL of Levered Firm?
>>>
>>> USING NI APPROACH
>>>
>>> VU= Rs.350
>>>
>>> • Equity
>>> = NI / rE
>>> = 63 / 0.2
>>> = Rs.315 (Major Assumption: No change in rE)
>>> • VL = Equity + Debt
>>> = 315 + 100
>>> = Rs.415. (Increasing Debt ADDS Value!)
>>>
>>> USING TAX SHIELD APPROACH
>>>
>>> • VL = Equity + Debt
>>>
>>>  VL = Vu + Tc D.
>>>
>>> = 350 + 0.3(100)
>>>
>>> = Rs. 380 which is differet from the answer of VL by NI approach
>>>
>>> • Equity
>>>
>>> Market Value of Equity = E = VL - D
>>>
>>> = 380 - 100 = Rs. 250 which again is different from the answer by NI
>>> approach
>>>
>>> CAN YOU PLEASE CLARIFY WHY IS THIS SO WHEN ITS TOLD IN THE VIDEO LECTURE
>>> THAT BOTH APPROACHES WILL GIVE THE SAME ANSWERS. SECONDLY WHICH TO USE?
>>>
>>> Thanks again
>>>
>>> --
>>>
>>> FIZZA DASTGIR BHATTI
>>>
>>> *~*~*~*~*~*~*~*~*~*~*~*
>>>
>>> MC090405569
>>> MBA - ISLAMABAD
>>>
>>>
>>> --
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>>
>> --
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>
>
>
> --
> i don't believe to take  r8 decision................just take
> decision.....and make dem r8!
> SIDRA SAHAR
> BSCS 2NS SEMESTER!
>
> --
> We say, "Be one as Pakistani Nation and grow up for Pakistan's Future". Wish
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>

--
We say, "Be one as Pakistani Nation and grow up for Pakistan's Future". Wish you all the best. Join www.vuaskari.com,
To post to this group, send email to vuaskari_com@googlegroups.com
Visit these groups:
This (Main) Group:http://groups.google.com/group/vuaskari_com?hl=en?hl=en
MIT/MCS Group: http://groups.google.com/group/vu_askarimit?hl=en?hl=en
HRM Group: http://groups.google.com/group/askari_hrm?hl=en?hl=en
Banking Group: http://groups.google.com/group/askari_banking?hl=en?hl=en
Management: https://groups.google.com/group/vuaskari_mgt?hl=en
Marketing: https://groups.google.com/group/vuaskari_mkt?hl=en
MIS Group: http://groups.google.com/group/askari_mis?hl=en