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​ = €67.00D1​D2​D3​…D0​ = €2.60, g = 3%, re​ = ?

A company has just paid a dividend of €2.60 per share. Dividends are expected to grow by 3% per year forever, and the share price is €67.00. Use the dividend growth model to find the cost of equity re.

D0 = €2.60g = 3%P0 = €67.00
re = %
2.Easy
βr (%)SMLrf​ = 2.5%β = 1rm​ = 6.5%β = 1.1re​ = ?

The risk-free rate is 2.5%, the expected market return is 6.5% and a share has a beta of 1.1. Use CAPM to find the required return on the share re.

rf = 2.5%rm = 6.5%β = 1.1
re = %
3.Medium
βr (%)SMLrf​ = 2.5%β = 1rm​ = ?β = 1.6re​ = 9.7%

A share with a beta of 1.6 has a required return of 9.7%. The risk-free rate is 2.5%. What expected market return rm does CAPM imply?

β = 1.6re = 9.7%rf = 2.5%
rm = %
4.Medium
WACC = 12.09%equity€8 000 000re​ = ?debt€2 000 000rd​ = 6%T = 25.8%

A company has equity worth €8 000 000 and debt worth €2 000 000. Its WACC is 12.09%, its pre-tax cost of debt is 6% and the tax rate is 25.8%. Find the cost of equity re.

E = €8 000 000D = €2 000 000WACC = 12.09%rd = 6%T = 25.8%
re = %
5.Hard
rf​ = 4%, rm​ − rf​ = 5.5%D/E = 0.4equityβL​ = 1.2debtD/E = 1.5equityre​ = ?debtT = 25.8%

A company's shares have a beta of 1.2 at its current debt-to-equity ratio of 0.4. It plans to raise its debt-to-equity ratio to 1.5. The tax rate is 25.8%, the risk-free rate 4% and the market risk premium 5.5%. Find the cost of equity re after the change.

βL = 1.2D/E1 = 0.4D/E2 = 1.5T = 25.8%rf = 4%rm − rf = 5.5%
re = %
6.Hard
WACC = ?equity€5 000 000re​ = 14%bonds8 000 × €1 037coupon 4%, n = 4T = 25.8%

A company has equity with a market value of €5 000 000 and a cost of equity of 14%. Its debt consists of 8 000 bonds (face value €1 000, annual coupon 4%, 4 years to maturity) that trade at €1 037 each. The tax rate is 25.8%. Find the WACC, using the yield to maturity of the bonds as the pre-tax cost of debt.

E = €5 000 000re = 14%bonds: 8 000 × €1 037coupon = 4%n = 4T = 25.8%
WACC = %

Answer key

  1. 1. re = 6.997 %
  2. 2. re = 6.9 %
  3. 3. rm = 7 %
  4. 4. re = 14 %
  5. 5. re = 14.75 %
  6. 6. WACC = 6.656 %

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