Help with wacc calculation

[Van Damme]

Magic Solutions Ltd is the process of incorporating debt into totally equity financed capital structure. The company is considering an 80% debt ratio under which, a $25 000 loan will be provided by the Development Bank of America (DBA) at 7% interest rate. The company pays all earnings as dividends and has a preference share price of $20 per share. The company has expected earnings per share of $1.20 and is subject to 35% tax rate.

Calculate the weighted average cost of capital (WACC) of the company?

 

[stapel]

Magic Solutions Ltd is the process of incorporating debt into totally equity financed capital structure. The company is considering an 80% debt ratio under which, a $25 000 loan will be provided by the Development Bank of America (DBA) at 7% interest rate. The company pays all earnings as dividends and has a preference share price of $20 per share. The company has expected earnings per share of $1.20 and is subject to 35% tax rate.

Calculate the weighted average cost of capital (WACC) of the company?

What are your thoughts? What have you tried? How far have you gotten? Where are you getting stuck?

Please be complete. Thank you!

 

[mroberts]

Wacc

It might help having the formula:
WACC = E/V(R.eq) + D/V(R.debt)(1-Tax rate)

E/V = 0.2
Return on equity = 1.20/20
D/V = 0.8
Return on debt = 7%
Tax rate = 35%

I'm sure you can input the figures from there.