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​ = 2.5%β = 1rm​ = 9.5%β = ?re​ = 11.25%

Investors require a return of 11.25% on a share. The risk-free rate is 2.5% and the expected market return is 9.5%. Use CAPM to find the beta β of the share.

re = 11.25%rf = 2.5%rm = 9.5%
β =
2.Easy
Dloans€10 000 000I = €700 000tax savingT = 20%interest after tax?rd​·(1 − T) = ?

A company has loans of €10 000 000 on which it pays €700 000 interest per year. The tax rate is 20%. Find the after-tax cost of debt rd·(1 − T) in percent.

D = €10 000 000I = €700 000T = 20%
rd·(1 − T) = %
3.Medium
WACC = ?equity€10 000 000re​ = 13%debt€4 000 000rd​ = 4%T = 30%

A company has equity worth €10 000 000 and debt worth €4 000 000. Its cost of equity is 13%, its pre-tax cost of debt is 4% and the tax rate is 30%. Find the WACC.

E = €10 000 000D = €4 000 000re = 13%rd = 4%T = 30%
WACC = %
4.Medium
WACC = ?equity€8 000 000re​ = 14%debt€6 000 000rd​ = 7%T = 28%

A company has equity worth €8 000 000 and debt worth €6 000 000. Its cost of equity is 14%, its pre-tax cost of debt is 7% and the tax rate is 28%. Find the WACC.

E = €8 000 000D = €6 000 000re = 14%rd = 7%T = 28%
WACC = %
5.Hard
rf​ = 3%, rm​ − rf​ = 5.5%D/E = 0.25equityβL​ = 1debtD/E = 0.75equityre​ = ?debtT = 25%

A company's shares have a beta of 1 at its current debt-to-equity ratio of 0.25. It plans to raise its debt-to-equity ratio to 0.75. The tax rate is 25%, the risk-free rate 3% and the market risk premium 5.5%. Find the cost of equity re after the change.

βL = 1D/E1 = 0.25D/E2 = 0.75T = 25%rf = 3%rm − rf = 5.5%
re = %
6.Hard
rf​ = 4%, rm​ − rf​ = 5.5%D/E = 0.25equityβL​ = 1debtD/E = 0.75equityre​ = ?debtT = 30%

A company's shares have a beta of 1 at its current debt-to-equity ratio of 0.25. It plans to raise its debt-to-equity ratio to 0.75. The tax rate is 30%, the risk-free rate 4% and the market risk premium 5.5%. Find the cost of equity re after the change.

βL = 1D/E1 = 0.25D/E2 = 0.75T = 30%rf = 4%rm − rf = 5.5%
re = %

Answer key

  1. 1. β = 1.25
  2. 2. rd·(1 − T) = 5.6 %
  3. 3. WACC = 10.09 %
  4. 4. WACC = 10.16 %
  5. 5. re = 10.24 %
  6. 6. re = 11.14 %

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