1. **Problem Statement:** We need to find Electrolux's capital structure proportions (debt and equity) and its weighted average cost of capital (WACC) using the given data. 2. **Given Data:** - Swedish government bond yield (risk-free rate), $r_f = 4.30\%$ - Electrolux credit risk premium, $CRP = 1.20\%$ - Corporate tax rate, $T_c = 26.00\%$ - Electrolux beta, $\beta = 1.30$ - Equity market risk premium, $MRP = 4.00\%$ - Shares outstanding, $N = 286,130,000$ - Share price, $P = 182$ - Debt outstanding, $D = 11,532,000,000$ 3. **Step 1: Calculate Electrolux's cost of debt after tax.** - Cost of debt before tax, $r_d = r_f + CRP = 4.30\% + 1.20\% = 5.50\%$ - After-tax cost of debt, $r_d(1 - T_c) = 5.50\% \times (1 - 0.26) = 5.50\% \times 0.74 = 4.07\%$ 4. **Step 2: Calculate Electrolux's cost of equity using CAPM.** - Formula: $r_e = r_f + \beta \times MRP$ - Substitute values: $r_e = 4.30\% + 1.30 \times 4.00\% = 4.30\% + 5.20\% = 9.50\%$ 5. **Step 3: Calculate market value of equity (market capitalization).** - $E = N \times P = 286,130,000 \times 182 = 52,086,660,000$ 6. **Step 4: Calculate total value of the firm (V).** - $V = D + E = 11,532,000,000 + 52,086,660,000 = 63,618,660,000$ 7. **Step 5: Calculate proportions of debt and equity in capital structure.** - Debt proportion, $w_d = \frac{D}{V} = \frac{11,532,000,000}{63,618,660,000} \approx 0.1812$ - Equity proportion, $w_e = \frac{E}{V} = \frac{52,086,660,000}{63,618,660,000} \approx 0.8188$ 8. **Step 6: Calculate weighted average cost of capital (WACC).** - Formula: $$WACC = w_d \times r_d(1 - T_c) + w_e \times r_e$$ - Substitute values: $$WACC = 0.1812 \times 0.0407 + 0.8188 \times 0.095 = 0.00738 + 0.07779 = 0.08517 = 8.52\%$$ **Final answers:** - Proportion of debt: $18.12\%$ - Proportion of equity: $81.88\%$ - Weighted average cost of capital (WACC): $8.52\%$