Essay on Weighted Average Cost of Capital

WACC: Weighted average cost of capital =WACC= SS+B? Rs+BS+B? RB? 1-tC note: Rs , cost of equity; RB , cost of debt; tC , corporate tax rate. For cost of equity, Rs, we calculate it by using the SML, according to CAPM model. Rs=RF+?? [RM-RF] As we can see in the chart behind the case, beta of Worldwide Paper Company is 1. 10; the Market risk premium (RM-RF) is 6. 0%. Because this on-site longwood woodyard project has six year life and the investment spend over two years, the total long of this program is more closer to 10-years, we choose the 10-year government bonds as risk free rate, 4. 60%.
Thus, Rs=4. 60%+1. 10? 6. 0% =11. 20%. For the cost of debt, there are two kinds of debts of Worldwide Paper Company, bank loan and long-term debt. The cost of long-term debt is 5. 78% (A rating 10-years maturities corporate bonds) , and the value of long term debt is $2500M. Thus, RB=5. 78%. For the value of equity and debt, market value weights are more appropriate than book value weights, because the market values of the securities are closer to the actual dollars that would be received from their sale. There are the market weights expected to prevail over the life of the firm or the project.
S=500? $24. 00=$12,000M; B=$2500 RWACC=1200012000+3000? 11. 20%+300012000+3000? 5. 88%=9. 76% Payback Period: YEAR| 2007| 2008| 2009| 2010| 2011| 2012| 2013| Total CF of investment| -16| -2. 4| -0. 6|  |  |  | 2. 08| OCF|  | 2. 88| 4. 5| 4. 5| 4. 5| 4. 5| 4. 5| Cumulative CF| -16| -15. 52| -11. 62| -7. 12| -2. 62| 1. 88| 8. 46| Thus, the payback period is 4+2. 624. 5=4. 58 year. Discounted Payback Period: YEAR| 2007| 2008| 2009| 2010| 2011| 2012| 2013| Total CF of investment| -16| -2. 4| -0. 6| 0| 0| 0| 2. 08| discounted CF of investment| -16| -2. 18| -0. 0| 0| 0| 0| 1. 18| OCF|  | 2. 88| 4. 5| 4. 5| 4. 5| 4. 5| 4. 5| discounted OCF|  | 2. 62| 3. 73| 3. 39| 3. 09| 2. 81| 2. 56| sum| -16| 0. 44| 3. 23| 3. 39| 3. 09| 2. 81| 3. 74| Cumulative CF| -16| -15. 56| -12. 33| -8. 94| -5. 85| -3. 04| 0. 70| Thus, the discounted payback period is 5+3. 044. 5=5. 81 year. Average Accounting Method: YEAR| 2007| 2008| 2009| 2010| 2011| 2012| 2013| average| net income|  | -0. 12| 1. 5| 1. 5| 1. 5| 1. 5| 1. 5| 1. 23| investment| 16| 15. 4| 13| 10| 7| 4| 0| 9. 34| Thus, AAR=Average net incomeAverage investment=1. 239. 34=13. 16%

Don't use plagiarized sources. Get Your Custom Essay on
Essay on Weighted Average Cost of Capital
Just from $13/Page
Order Essay
Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 20% with the discount code WELCOME