Final answer:
To calculate the WACC of Windows Phone Corp with the given values, we determine the weights of equity and debt in the firm's capital structure, multiply them by their respective required rates of return, and add the products together. The weighted average cost of capital (WACC) is found to be 14.72% when rounded to two decimal places.
Step-by-step explanation:
The student has asked to calculate the weighted average cost of capital (WACC) for Windows Phone Corp, which has its common stock and debt valued at $45 million and $31 million respectively. To find the WACC, we need to calculate the proportion of financing that comes from equity and debt and then multiply each by their respective cost of capital.
The cost of equity is given as 19%, and the cost of debt is given as 9%. Since there are no taxes, we won't need to account for tax shields in our calculations. To calculate the weights, we divide the market value of equity by the total value of the firm ($45 million / ($45 million + $31 million)) and the market value of debt by the total value of the firm ($31 million / ($45 million + $31 million)). We then multiply these weights by their respective costs and sum them to get the WACC.
Weight of Equity = $45 million / ($45 million + $31 million) = 0.5921 (or 59.21%)
Weight of Debt = $31 million / ($45 million + $31 million) = 0.4079 (or 40.79%)
Now, WACC = (0.5921 * 19%) + (0.4079 * 9%) = 14.7199%
Therefore, when rounded to two decimal places, the WACC is 14.72%.