Respuesta :
Xaomin Inc. tries to determine its cost of capital. Xiaomin'sost of capital is 12.19%.
Given Xaomin Inc.'s bond,
Year to maturity = 15 year
Coupon rate = 12%
Face value = $1000
Coupon = 12% of 1000 = $120
Price of the bond = $1060
Therefore, enter the following variables into a financial calculator to get the bond's YTM:
FV = 1000
PV = -1060
PMT = 120
N = 15
Compute for I/Y, we get I/Y = 11.16
Consequently, the bond's yield to maturity = 11.16%
The YTM of a company's bond is equivalent to the bond's cost of debt.
Cost of debt of the company Kd = 11.16%
cost of equity Ke = 14%
Total debt of company = $24500
Total equity of company = $45500
Weight of debt = Debt/(debt + equity)
= 24500/(24500 + 45500)
= 0.35
Similarly, weight of equity = equity/(debt + equity)
= 45500/(24500 + 45500)
= 0.65
So, WACC of Xaomin Inc is
WACC = Wd × Kd × (1 - T) + We × Ke
= 0.35 × 11.16 × (1 - 0.21) + 0.65 × 14
= 12.19%
To learn more about the cost of capital
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