CAPM & WACC worksheet with answers

Free printable CAPM & WACC worksheet: 6 problems from easy to exam level, with an answer key. Print it or save it as a PDF.

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1.Easy
years0123…9Pp​ = €26€8.00€8.00€8.00…rp​ = ?

A company's preferred shares pay a fixed dividend of €8.00 per year and trade at €26. The tax rate is 25%. Find the cost of preferred stock rp.

Dp = €8.00Pp = €26T = 25%
rp = %
2.Easy
βr (%)SMLrf​ = 3%β = 1rm​ = 7.5%β = 1.2re​ = ?

The risk-free rate is 3%, the expected market return is 7.5% and a share has a beta of 1.2. Use CAPM to find the required return on the share re.

rf = 3%rm = 7.5%β = 1.2
re = %
3.Medium
WACC = ?equityEre​ = 12%debtD = 0.75·Erd​ = 3%T = 30%

A company has a debt-to-equity ratio (at market values) of 0.75. Its cost of equity is 12%, its pre-tax cost of debt is 3% and the tax rate is 30%. Find the WACC.

D/E = 0.75re = 12%rd = 3%T = 30%
WACC = %
4.Medium
WACC = ?equity€6 000 000re​ = 11%debt€1 000 000rd​ = 4%T = 25.8%

A company has equity worth €6 000 000 and debt worth €1 000 000. Its cost of equity is 11%, its pre-tax cost of debt is 4% and the tax rate is 25.8%. Find the WACC.

E = €6 000 000D = €1 000 000re = 11%rd = 4%T = 25.8%
WACC = %
5.Hard
rf​ = 1%, rm​ − rf​ = 4.5%D/E = 0.2equityβL​ = 1.1debtD/E = 1equityre​ = ?debtT = 30%

A company's shares have a beta of 1.1 at its current debt-to-equity ratio of 0.2. It plans to raise its debt-to-equity ratio to 1. The tax rate is 30%, the risk-free rate 1% and the market risk premium 4.5%. Find the cost of equity re after the change.

βL = 1.1D/E1 = 0.2D/E2 = 1T = 30%rf = 1%rm − rf = 4.5%
re = %
6.Hard
rf​ = 4%, rm​ − rf​ = 4.5%no debtequityβU​ = 0.6D/E = 0.6equityre​ = ?debtT = 28%

A company's business has an unlevered (asset) beta of 0.6. It plans a debt-to-equity ratio of 0.6. The tax rate is 28%, the risk-free rate is 4% and the market risk premium is 4.5%. Find the cost of equity re at the new capital structure.

βU = 0.6D/E = 0.6T = 28%rf = 4%rm − rf = 4.5%
re = %

Answer key

  1. 1. rp = 30.77 %
  2. 2. re = 8.4 %
  3. 3. WACC = 7.757 %
  4. 4. WACC = 9.853 %
  5. 5. re = 8.382 %
  6. 6. re = 7.866 %

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