WACC & CAPM Let us take an example of a company DCF Inc. to illustrate the computation of WACC. During FY19, the company

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WACC & CAPM
Let us take an example of a company DCF Inc. to illustrate the
computation of WACC. During FY19, the company’s real estate
investment generated a return of ~5.5%. As per the latest annual
report, the company has an outstanding debt of $50.0 million and
common equity valued at $70.0 million. During that period the
company has incurred $2.0 million as interest expense on its debt.
On the other hand, the risk-free rate of return is 1.5%, the market
return is 4.0% and the company’s beta is 1.2x. Calculate WACC based
on the given information and check whether the investment return of
5.5% exceeds its cost of capital if the tax rate is 32%.
Note: Cost of equity is to be derived from CAPM formula: