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​ = €29€2.00€2.00€2.00…rp​ = ?

A company's preferred shares pay a fixed dividend of €2.00 per year and trade at €29. The tax rate is 21%. Find the cost of preferred stock rp.

Dp = €2.00Pp = €29T = 21%
rp = %
2.Easy
βr (%)SMLrf​ = 2.5%β = 1rm​ = 9.5%β = 1.8re​ = ?

The risk-free rate is 2.5%, the expected market return is 9.5% and a share has a beta of 1.8. Use CAPM to find the required return on the share re.

rf = 2.5%rm = 9.5%β = 1.8
re = %
3.Medium
βr (%)SMLrf​ = 1%β = 1rm​ = ?β = 0.9re​ = 4.6%

A share with a beta of 0.9 has a required return of 4.6%. The risk-free rate is 1%. What expected market return rm does CAPM imply?

β = 0.9re = 4.6%rf = 1%
rm = %
4.Medium
WACC = ?equityEre​ = 9%debtD = 1.5·Erd​ = 5%T = 28%

A company has a debt-to-equity ratio (at market values) of 1.5. Its cost of equity is 9%, its pre-tax cost of debt is 5% and the tax rate is 28%. Find the WACC.

D/E = 1.5re = 9%rd = 5%T = 28%
WACC = %
5.Hard
rf​ = 3.5%, rm​ − rf​ = 5.5%no debtequityβU​ = 1D/E = 0.5equityre​ = ?debtT = 21%

A company's business has an unlevered (asset) beta of 1. It plans a debt-to-equity ratio of 0.5. The tax rate is 21%, the risk-free rate is 3.5% and the market risk premium is 5.5%. Find the cost of equity re at the new capital structure.

βU = 1D/E = 0.5T = 21%rf = 3.5%rm − rf = 5.5%
re = %
6.Hard
rf​ = 2%, rm​ − rf​ = 6%no debtequityβU​ = 1.1D/E = 0.4equityre​ = ?debtT = 25%

A company's business has an unlevered (asset) beta of 1.1. It plans a debt-to-equity ratio of 0.4. The tax rate is 25%, the risk-free rate is 2% and the market risk premium is 6%. Find the cost of equity re at the new capital structure.

βU = 1.1D/E = 0.4T = 25%rf = 2%rm − rf = 6%
re = %

Answer key

  1. 1. rp = 6.897 %
  2. 2. re = 15.1 %
  3. 3. rm = 5 %
  4. 4. WACC = 5.76 %
  5. 5. re = 11.17 %
  6. 6. re = 10.58 %

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