how can i calculate the book value of WACC dated in 31-12-1992?

Question

Determine the weighed average cost of capital (WACC) of x xompanie at 31 december 1992 considering 1- the book value ( accounting approach) 2- The market value (financial approach)

Answer 1

WACC = (D/V)*r(d)*(1-t) + (E/V)*r(e)

where:

D = value of debt
E = value of equity
V = E+D
r(d) = expected return on debt -- we usually use the yield of debt
r(e) = expected return on equity -- we usually find this with the beta and CAPM
t = tax rate.

For the book value WACC, use the book values of debt and equity. For the Market Value WACC, use the market value of equity. Ideally, we would like to use the market value of debt as well -- but that is hard to find, so the book value of debt is usually used.

The book value and market value of debt are usually close to one another. The book value of equity and the market value of equity are usually not very close.