You are trying to calculate the WACC for two firms. Firm XiG ispublicly traded and firm TanW is a private firm. You have collectedall necessary information for your WACC calculation:
In terms of liabilities, XiG has account payables of $400Millionand a bank loan of $200Million. XiG also has cash holding of$300Million. XiG is current trading at $520/share with 1 Millionshares outstanding. XiG’s returns move one to one with the stockmarket returns.
XiG’s average tax rate is 30% and marginal tax rate of 35%. XiGis rated as Aa1 by Moody’s and similar Aa1 rating firms have costof debt of 2%. Risk free rate is 1%, market risk premium is 5%.
TanW is in the same industry as XiG. After consulting with anindustry expert, you are confident that TanW and XiG have roughlythe same business risk. Currently, TanW has net debt to equityratio of 2. TanW’s average tax rate is 30% and marginal tax rate of35%. Its cost of debt is 3%.
Now you proceed to calculate the WACC for both firms
Q1. Which firm’s cost of equity (rE) can only be calculatedusing comparable method?
- XiG
- TanW
- Both
- Neither
Q2. What is the net debt for XiG?
Input the net debt for XiG: $____ Million
Q3. What is the market value of equity for XiG?
Enter the market value of equity for XiG: $_____Million
Q4. What is WACC for XiG?
           Enter the WACC for XiG: ___% (keep two decimal points)
Q5. What is the asset beta for TanW?
- 1.01
- 1.24
- 1.51
- 1.60
Q6. What is the WACC for TanW?
- 6.58
- 7.12
- 7.83
- 8.65
