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.

New worksheetPractise online with hints

For teachers: free to print, copy and use in class. Every new worksheet has new values and its own answer key. A link to ExamProblems on your course page is appreciated.

Name: ____________________   Date: ____________

1.Easy
years0123…9Pp​ = €60€5.00€5.00€5.00…rp​ = ?

A company's preferred shares pay a fixed dividend of €5.00 per year and trade at €60. The tax rate is 28%. Find the cost of preferred stock rp.

Dp = €5.00Pp = €60T = 28%
rp = %
2.Easy
βr (%)SMLrf​ = 4%β = 1rm​ = 10%β = 0.8re​ = ?

The risk-free rate is 4%, the expected market return is 10% and a share has a beta of 0.8. Use CAPM to find the required return on the share re.

rf = 4%rm = 10%β = 0.8
re = %
3.Medium
WACC = ?equityEre​ = 8%debtD = 0.4·Erd​ = 3.5%T = 30%

A company has a debt-to-equity ratio (at market values) of 0.4. Its cost of equity is 8%, its pre-tax cost of debt is 3.5% and the tax rate is 30%. Find the WACC.

D/E = 0.4re = 8%rd = 3.5%T = 30%
WACC = %
4.Medium
βr (%)SMLrf​ = 2%β = 1rm​ = ?β = 1.5re​ = 10.25%

A share with a beta of 1.5 has a required return of 10.25%. The risk-free rate is 2%. What expected market return rm does CAPM imply?

β = 1.5re = 10.25%rf = 2%
rm = %
5.Hard
WACC = ?equity€12 000 000re​ = 11%bonds2 000 × €918coupon 5%, n = 7T = 25%

A company has equity with a market value of €12 000 000 and a cost of equity of 11%. Its debt consists of 2 000 bonds (face value €1 000, annual coupon 5%, 7 years to maturity) that trade at €918 each. The tax rate is 25%. Find the WACC, using the yield to maturity of the bonds as the pre-tax cost of debt.

E = €12 000 000re = 11%bonds: 2 000 × €918coupon = 5%n = 7T = 25%
WACC = %
6.Hard
rf​ = 3.5%, rm​ − rf​ = 5.5%D/E = 0.25equityβL​ = 1.4debtD/E = 1.25equityre​ = ?debtT = 25.8%

A company's shares have a beta of 1.4 at its current debt-to-equity ratio of 0.25. It plans to raise its debt-to-equity ratio to 1.25. The tax rate is 25.8%, the risk-free rate 3.5% and the market risk premium 5.5%. Find the cost of equity re after the change.

βL = 1.4D/E1 = 0.25D/E2 = 1.25T = 25.8%rf = 3.5%rm − rf = 5.5%
re = %

Answer key

  1. 1. rp = 8.333 %
  2. 2. re = 8.8 %
  3. 3. WACC = 6.414 %
  4. 4. rm = 7.5 %
  5. 5. WACC = 10.19 %
  6. 6. re = 16.02 %

Full step-by-step solutions: practise this topic on examproblems.com.