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​ = 7.5%β = ?re​ = 5.5%

Investors require a return of 5.5% on a share. The risk-free rate is 2.5% and the expected market return is 7.5%. Use CAPM to find the beta β of the share.

re = 5.5%rf = 2.5%rm = 7.5%
β =
2.Easy
Dloans€5 000 000I = €350 000tax savingT = 21%interest after tax?rd​·(1 − T) = ?

A company has loans of €5 000 000 on which it pays €350 000 interest per year. The tax rate is 21%. Find the after-tax cost of debt rd·(1 − T) in percent.

D = €5 000 000I = €350 000T = 21%
rd·(1 − T) = %
3.Medium
WACC = 9.4%equity€8 000 000re​ = ?debt€4 000 000rd​ = 6%T = 30%

A company has equity worth €8 000 000 and debt worth €4 000 000. Its WACC is 9.4%, its pre-tax cost of debt is 6% and the tax rate is 30%. Find the cost of equity re.

E = €8 000 000D = €4 000 000WACC = 9.4%rd = 6%T = 30%
re = %
4.Medium
WACC = 7.25%equity€4 000 000re​ = ?debt€2 000 000rd​ = 5%T = 25%

A company has equity worth €4 000 000 and debt worth €2 000 000. Its WACC is 7.25%, its pre-tax cost of debt is 5% and the tax rate is 25%. Find the cost of equity re.

E = €4 000 000D = €2 000 000WACC = 7.25%rd = 5%T = 25%
re = %
5.Hard
rf​ = 3.5%, rm​ − rf​ = 7%D/E = 0.25equityβL​ = 0.9debtD/E = 1equityre​ = ?debtT = 21%

A company's shares have a beta of 0.9 at its current debt-to-equity ratio of 0.25. It plans to raise its debt-to-equity ratio to 1. The tax rate is 21%, the risk-free rate 3.5% and the market risk premium 7%. Find the cost of equity re after the change.

βL = 0.9D/E1 = 0.25D/E2 = 1T = 21%rf = 3.5%rm − rf = 7%
re = %
6.Hard
rf​ = 1%, rm​ − rf​ = 6%D/E = 0.4equityβL​ = 1.2debtD/E = 1.5equityre​ = ?debtT = 30%

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 30%, the risk-free rate 1% and the market risk premium 6%. Find the cost of equity re after the change.

βL = 1.2D/E1 = 0.4D/E2 = 1.5T = 30%rf = 1%rm − rf = 6%
re = %

Answer key

  1. 1. β = 0.6
  2. 2. rd·(1 − T) = 5.53 %
  3. 3. re = 12 %
  4. 4. re = 9 %
  5. 5. re = 12.92 %
  6. 6. re = 12.53 %

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