How do I calculate wacc?

[jim.lacy]

This is the homework problem I have. I've had no luck finding the proper way to calculate this problem in the text or online. Hopefully one of you can help me.

[FONT=&quot]ABC has a target capital structure of 22% debt and the rest common equity. ABC's outstanding bonds have a yield to maturity of 4.2 percent. The marginal tax rate is 40%. The beta for its common stock is 0.7. The rate of return on US Treasury securities is 4% and the expected return for the S&P 500 stock index is 17.6%. Given this information, what is ABC's weighted average cost of capital (WACC). Enter your answer in decimal form to four decimal places (12.34% would be entered as 0.1234).[/FONT]

 

[Deleted member 4993]

This is the homework problem I have. I've had no luck finding the proper way to calculate this problem in the text or online. Hopefully one of you can help me.

ABC has a target capital structure of 22% debt and the rest common equity. ABC's outstanding bonds have a yield to maturity of 4.2 percent. The marginal tax rate is 40%. The beta for its common stock is 0.7. The rate of return on US Treasury securities is 4% and the expected return for the S&P 500 stock index is 17.6%. Given this information, what is ABC's weighted average cost of capital (WACC). Enter your answer in decimal form to four decimal places (12.34% would be entered as 0.1234).

Looks like you are having trouble to start the problem.

So let's start with the definitions:

What is "target capital structure"?

What is "outstanding bonds"?

What is meant by "yield to maturity of bonds"?

What is "beta for common stock"?

What is meant by "rate of return on US Treasury securities"?

What is meant by "the expected return for the S&P 500 stock index"?

What is meant by "weighted average cost of capital"?

If you do not know these definitions, please consult your text-book/class-notes/Google?

Please let us know the definitions you find.