Question for Corp Fin gurus
I recently had a test question (Final exam for corporate finance) that asked me to calculate WACC, which my entire class, including myself, found very difficult. The question asked us to calculate the WACC for a company. The problem with the question was that it did not state the cost of debt, nor did it give us the information on bonds outstanding so we could ourselves calculate YTM. The question simply said the company had Long-term interest expense of $40 million. The cost of equity was easy to calculate through CAPM, but the debt part was tricky. Could anyone help?
Maybe you could give us the whole question...
Let's assume that $40 million is long term interest expense, meaning it is due THIS YEAR. Now we know that on whatever LT debt we have (let's also assume this is all the debt the firm has), we need to know how much debt outstanding the firm has.
If they didn't give you the number directly, you could have backed it out easily from the firm's enterprise value, assuming you knew the market cap/share price, etc. We all need more information on the question (maybe the Q itself) before anyone can really help you.
If LT Debt was $40mn and you had the total LT Debt amount (probably via a balance sheet), couldn't you just calculate cost of debt by (interest expense)/(long term debt) ?
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