Ross et al.: Fundamentals
of Corporate Finance, Sixth
Edition, Alternate EditionVI. Cost of Capital and
Long−Term Financial
Policy- Cost of Capital © The McGraw−Hill^531
Companies, 2002
Calculating the WACC for Eastman Chemical
In this section, we illustrate how to calculate the WACC for Eastman Chemical, the
company we discussed at the beginning of the chapter. Our goal is to take you through,
on a step-by-step basis, the process of finding and using the information needed using
online sources. As you will see, there is a fair amount of detail involved, but the neces-
sary information is, for the most part, readily available.
Eastman’s Cost of Equity Our first stop is the company profile for Eastman available
at finance.yahoo.com(ticker: “EMN”). As of mid-2001, here’s what the screen looked
like:
CHAPTER 15 Cost of Capital 503.93 $5 million $4.65 million. The total market value of the equity and debt together is
$28 million 4.65 million $32.65 million.
From here, we can calculate the WACC easily enough. The percentage of equity used by
Lean to finance its operations is $28 million/$32.65 million 85.76%. Because the weights
have to add up to 1, the percentage of debt is 1 .8576 14.24%. The WACC is thus:
WACC (E/V) RE(D/V) RD(1 TC)
.8576 13.18% .1424 11% (1 .34)
12.34%
B. B. Lean thus has an overall weighted average cost of capital of 12.34 percent.