Question

P9-13 WACC: Market value weights Boots Mechanics is based in Manchester United Kingdom. The market values and after-tax costs of various sources of capital used by the company are shown in the following table, Market value Individual cost Source of capital 20 vear band Common stock equity Long-term loan 4,000,000 10,000,000 a. Calculate the WACC for Boots Mechanics. b. Explain how the company can use the WACC if it wants to invest in a new project

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

C w Q ENG 12:14 20-07-2020 99+ 34 Х CZ798 . CW CX CY CZ DA DB DC DD DE 781 782 783 784 785 786 CALCULATION OF WACC A B SOURCE AMOUNT WEIGHTS (W) 0.3000 787 20 YEAR BOND COMMON STOCK EQUITY LONG TERM LOAN 6000000 4000000 10000000 C B*C COC (%) WEIGHTED COST (W X COC) 8% 2.40% 14% 2.80% 10% 5.00% 0.2000 0.5000 20000000 1 WACC = 10.20% ANSWER b HOW COMPANY CAN USE WACC IF IT WANTS TO INVEST IN A NEW PROJECT 788 789 790 791 792 793 794 795 796 797 798 799 800 801 802 The WACC is the rate of return that the firm must receive on long term projects to maintain the value of the firm. The cost of capital can be compared to the return for a project to determine whether the project is acceptable. 803 804 coNvexity DGM | beta VAR port future INDEX WACC HEDGE INTL CAP BUD Sheet11 SANDRINE LEASING PORTFOLOQ DIR right clean + ...