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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Name: ____________________   Date: ____________

1.Easy
years0123…9P0​ = €26.00D1​D2​D3​…D0​ = €1.00, g = 4%, re​ = ?

A company has just paid a dividend of €1.00 per share. Dividends are expected to grow by 4% per year forever, and the share price is €26.00. Use the dividend growth model to find the cost of equity re.

D0 = €1.00g = 4%P0 = €26.00
re = %
2.Easy
βr (%)SMLrf​ = 3%β = 1rm​ = 8%β = 1.3re​ = ?

The risk-free rate is 3%, the expected market return is 8% and a share has a beta of 1.3. Use CAPM to find the required return on the share re.

rf = 3%rm = 8%β = 1.3
re = %
3.Medium
WACC = ?equity€8 000 000re​ = 10%debt€4 000 000rd​ = 4%T = 25.8%

A company has equity worth €8 000 000 and debt worth €4 000 000. Its cost of equity is 10%, its pre-tax cost of debt is 4% and the tax rate is 25.8%. Find the WACC.

E = €8 000 000D = €4 000 000re = 10%rd = 4%T = 25.8%
WACC = %
4.Medium
WACC = ?ordinary shares€5 000 000re​ = 10%preferred shares€1 000 000rp​ = 8%debt€5 000 000rd​ = 5%T = 30%

A company is financed with ordinary shares worth €5 000 000, preferred shares worth €1 000 000 and debt worth €5 000 000. The cost of equity is 10%, the cost of preferred stock 8% and the pre-tax cost of debt 5%. The tax rate is 30%. Find the WACC.

E = €5 000 000Ps = €1 000 000D = €5 000 000re = 10%rp = 8%rd = 5%T = 30%
WACC = %
5.Hard
rf​ = 4%, rm​ − rf​ = 4%D/E = 0.4equityβL​ = 1.3debtD/E = 0.75equityre​ = ?debtT = 28%

A company's shares have a beta of 1.3 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 28%, the risk-free rate 4% and the market risk premium 4%. Find the cost of equity re after the change.

βL = 1.3D/E1 = 0.4D/E2 = 0.75T = 28%rf = 4%rm − rf = 4%
re = %
6.Hard
WACC = ?equity4 000 000 × €18.50D0​ = €2.60g = 2%debt€59 200 000rd​ = 3%T = 25.8%

A company has 4 000 000 shares trading at €18.50; the book value of its equity is €44 400 000. It just paid a dividend of €2.60 per share, and dividends grow by 2% per year. Its debt has a market value of €59 200 000 and a pre-tax cost of 3%. The tax rate is 25.8%. Find the WACC, using the dividend growth model for the cost of equity.

N = 4 000 000P0 = €18.50book equity = €44 400 000D0 = €2.60g = 2%D = €59 200 000rd = 3%T = 25.8%
WACC = %

Answer key

  1. 1. re = 8 %
  2. 2. re = 9.5 %
  3. 3. WACC = 7.656 %
  4. 4. WACC = 6.864 %
  5. 5. re = 10.22 %
  6. 6. WACC = 10.06 %

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