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
βr (%)SMLrf​ = 3%β = 1rm​ = 8.5%β = 1.1re​ = ?

The risk-free rate is 3%, the expected market return is 8.5% and a share has a beta of 1.1. Use CAPM to find the required return on the share re.

rf = 3%rm = 8.5%β = 1.1
re = %
2.Easy
years0123…9Pp​ = €42€3.00€3.00€3.00…rp​ = ?

A company's preferred shares pay a fixed dividend of €3.00 per year and trade at €42. The tax rate is 21%. Find the cost of preferred stock rp.

Dp = €3.00Pp = €42T = 21%
rp = %
3.Medium
WACC = ?equity€3 000 000re​ = 8%debt€1 000 000rd​ = 6%T = 30%

A company has equity worth €3 000 000 and debt worth €1 000 000. Its cost of equity is 8%, its pre-tax cost of debt is 6% and the tax rate is 30%. Find the WACC.

E = €3 000 000D = €1 000 000re = 8%rd = 6%T = 30%
WACC = %
4.Medium
WACC = ?ordinary shares€10 000 000re​ = 13%preferred shares€2 000 000rp​ = 8%debt€2 000 000rd​ = 4%T = 25%

A company is financed with ordinary shares worth €10 000 000, preferred shares worth €2 000 000 and debt worth €2 000 000. The cost of equity is 13%, the cost of preferred stock 8% and the pre-tax cost of debt 4%. The tax rate is 25%. Find the WACC.

E = €10 000 000Ps = €2 000 000D = €2 000 000re = 13%rp = 8%rd = 4%T = 25%
WACC = %
5.Hard
rf​ = 1%, rm​ − rf​ = 6.5%D/E = 0.4equityβL​ = 1debtD/E = 0.75equityre​ = ?debtT = 25%

A company's shares have a beta of 1 at its current debt-to-equity ratio of 0.4. It plans to raise its debt-to-equity ratio to 0.75. The tax rate is 25%, the risk-free rate 1% and the market risk premium 6.5%. Find the cost of equity re after the change.

βL = 1D/E1 = 0.4D/E2 = 0.75T = 25%rf = 1%rm − rf = 6.5%
re = %
6.Hard
WACC = ?equity1 000 000 × €56.50β = 0.9rf​ = 2.5%, rm​ = 6.5%debt5 000 × €1 000rd​ = 3%T = 21%

A company has 1 000 000 shares at €56.50 each and 5 000 bonds trading at €1 000 each. The pre-tax cost of debt is 3% and the tax rate is 21%. The share’s beta is 0.9, the risk-free rate 2.5% and the market return 6.5%. Find the WACC.

β = 0.9rf = 2.5%rm = 6.5%rd = 3%T = 21%
WACC = %

Answer key

  1. 1. re = 9.05 %
  2. 2. rp = 7.143 %
  3. 3. WACC = 7.05 %
  4. 4. WACC = 10.86 %
  5. 5. re = 8.813 %
  6. 6. WACC = 5.797 %

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