Instructor key — Module 4: Discount Rates and Risk for Private Businesses
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
Equity weight is 65%, Ke 22%, Kd 9%, tax 25%. Calculate WACC.
Calculated result: 0.16662500 ($000, except where the question requests a ratio or return). Equity contribution 14.3%; after-tax debt contribution 2.3625%; total 16.6625%. Use appropriate display rounding while retaining formula precision. This result is generated from the independent assignment inputs, not copied from the chapter answer.
Conceptual and judgment marking
A complete conceptual response identifies the measure's economic purpose, the defined perimeter and the risk of confusing it with another metric. Award up to 20 points for explanation, not terminology alone. For the applied question, award up to 15 for linking evidence to a concrete acquisition consequence; do not require an optimistic recommendation.
Spreadsheet marking
Award 15 of the 30 spreadsheet points for live links from assumptions, 10 for a coherent 10% mutation and predicted direction, and 5 for units, readable formatting and checks. Inspect formulas directly rather than accepting cached numbers. Use the instructor workbook for the controlling capstone model; this independent lab uses different inputs.
Calculation marking: 10 points for the correct equation/perimeter, 15 for intermediate arithmetic, and 10 for result, units and rounding. Overall pass requires 80 and all critical checks in the student version.
Original chapter practice solutions
The following solutions were moved out of the chapter so full answers no longer sit immediately below student questions. Match them in order to the chapter's practice problems.
Answer: WACC is 18.3%; without the shield it is 19.4%, holding all other inputs fixed. In reality, changing tax or leverage conditions may also change required returns.