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…9Pp​ = €85€3.00€3.00€3.00…rp​ = ?

A company's preferred shares pay a fixed dividend of €3.00 per year and trade at €85. The tax rate is 25.8%. Find the cost of preferred stock rp.

Dp = €3.00Pp = €85T = 25.8%
rp = %
2.Easy
βr (%)SMLrf​ = 3.5%β = 1rm​ = 9.5%β = 1.2re​ = ?

The risk-free rate is 3.5%, the expected market return is 9.5% and a share has a beta of 1.2. Use CAPM to find the required return on the share re.

rf = 3.5%rm = 9.5%β = 1.2
re = %
3.Medium
WACC = ?equity€6 000 000re​ = 13%debt€5 000 000rd​ = 4%T = 28%

A company has equity worth €6 000 000 and debt worth €5 000 000. Its cost of equity is 13%, its pre-tax cost of debt is 4% and the tax rate is 28%. Find the WACC.

E = €6 000 000D = €5 000 000re = 13%rd = 4%T = 28%
WACC = %
4.Medium
WACC = ?equity€2 000 000re​ = 13%debt€3 000 000rd​ = 5%T = 21%

A company has equity worth €2 000 000 and debt worth €3 000 000. Its cost of equity is 13%, its pre-tax cost of debt is 5% and the tax rate is 21%. Find the WACC.

E = €2 000 000D = €3 000 000re = 13%rd = 5%T = 21%
WACC = %
5.Hard
rf​ = 2.5%, rm​ − rf​ = 6.5%D/E = 0.4equityβL​ = 1.3debtD/E = 0.75equityre​ = ?debtT = 21%

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 21%, the risk-free rate 2.5% and the market risk premium 6.5%. Find the cost of equity re after the change.

βL = 1.3D/E1 = 0.4D/E2 = 0.75T = 21%rf = 2.5%rm − rf = 6.5%
re = %
6.Hard
rf​ = 1%, rm​ − rf​ = 6%no debtequityβU​ = 0.9D/E = 0.5equityre​ = ?debtT = 28%

A company's business has an unlevered (asset) beta of 0.9. It plans a debt-to-equity ratio of 0.5. The tax rate is 28%, the risk-free rate is 1% and the market risk premium is 6%. Find the cost of equity re at the new capital structure.

βU = 0.9D/E = 0.5T = 28%rf = 1%rm − rf = 6%
re = %

Answer key

  1. 1. rp = 3.529 %
  2. 2. re = 10.7 %
  3. 3. WACC = 8.4 %
  4. 4. WACC = 7.57 %
  5. 5. re = 12.73 %
  6. 6. re = 8.344 %

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