What is Fenerbahce SK Company's Weighted Average Cost of Capital (WACC)?

What are the components of Fenerbahce SK Company's target capital structure and their respective costs?

Understanding Fenerbahce SK Company's WACC Calculation

Fenerbahce SK Company's target capital structure consists of 35% debt, 10% preferred stock, and 55% common equity. The costs associated with each component are as follows: 1. Debt: The interest rate on new debt is 6.50%. After adjusting for the tax advantage of debt (tax rate of 40%), the after-tax cost of debt is 3.90%. 2. Preferred Stock: The yield on the preferred stock is 6.00%. 3. Common Equity: The cost of retained earnings, representing common equity, is 14.75%. Since no new stock will be issued, we do not need to consider the cost of issuing new equity.

Calculating Fenerbahce SK Company's WACC

To calculate the Weighted Average Cost of Capital (WACC) for Fenerbahce SK Company, we need to consider the weighted costs of each component in the capital structure. WACC = (Weight of Debt * Cost of Debt) + (Weight of Preferred Stock * Cost of Preferred Stock) + (Weight of Common Equity * Cost of Common Equity) Plugging in the values: WACC = (0.35 * 3.90%) + (0.10 * 6.00%) + (0.55 * 14.75%) WACC = 1.365% + 0.600% + 8.1125% WACC = 10.0775% Rounding to two decimal places, the WACC for Fenerbahce SK Company is 10.08%. This calculation ensures that the company's overall cost of capital is accurately reflected in its funding structure.

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