Capital planning | Business & Finance homework help

I will send the excel spread sheet.. References have to have a web address. 

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Review the WACC calculations in the attached Excel file. In your own words, do the following:

  • Explain the steps for deriving the WACC.
  • Discuss the challenges involved in deriving the WACC.
  • Rank and discuss other capital project evaluation techniques, and explain the reasoning behind your ranking


Cost of Capital – WACC
Market Interest Rate            
a) What is the market interest rate on UPC’s debt and its component cost of debt?  
Coupon rate 6%          
Coupons per year 1          
Years to Maturity 15          
Price   $10,153.72          
Face value   $10,000          
Tax rate   30%          
N 15            
PV $10,153.72            
PMT $600            
FV $10,000            
B-T rd 5.8% Market Interest Rate        
A-T rd 4.1% Cost of Debt        
Cost of Preferred Stock            
b) What is UPC’s cost of preferred stock?        
Nominal dividend rate 8%          
Dividends per year 4          
Par value   $100          
Price   $111.10          
rp 7.20% Cost of Preferred Stock        
Cost of Common Stock            
c) What is UPC’s estimated cost of common equity using the CAPM approach?  
β   1.2 Beta        
rRF   7% Risk Free Rate      
RPM   6% Market Risk Premium      
rS        14.20% Cost of Common Stock        
Discounted Cash Flow Approach (DCF)        
d) What is the estimated cost of common equity using the DCF approach?  
Price   $100          
Current dividend $10.00          
Constant growth rate 5%          
D1   $10.45 Dividend after Year 1        
rs  14.95% Cost of Common Stock        
Cost of Common Stock          
e) What is the bond-yield-plus-risk-premium estimate for UPC’s cost of common equity?
“Bond yield + RP” premium Given RP = 3%      
ks         = 8.84%            
PART G              
f) What is your final estimate for rs?          
  CAPM 14.20%          
  DCF 14.95%          
  rd + RP 8.84%          
  Average 12.66%          
g) What is UPC’s overall, or weighted average cost of capital (WACC)?    
wd 30% A-T rd 4.09%        
wp 10% rp 7.20%   WACC = 9.55%  
ws 60% rs 12.66%        

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