Weighted Average Cost of Capital

WACC Weighted average court of capital =WACC= SS+B? Rs+BS+B? RB? 1-tC note Rs , toll of integrity RB , exist of debt tC , corporal tax rate. For court of equity, Rs, we calculate it by using the SML, according to CAPM model. Rs=RF+?? RM-RF As we can see in the graph behind the case, beta of Worldwide make-up Company is 1. 10 the Market insecurity premium (RM-RF) is 6. 0%. Because this on-site longwood woodyard show has six year action and the enthronement spend over two years, the entire long of this program is more adjacent to 10-years, we choose the 10-year government bonds as endangerment free rate, 4. 60%.Thus, Rs=4. 60%+1. 10? 6. 0% =11. 20%. For the cost of debt, on that point are two kinds of debts of Worldwide root Company, bank loan and long-term debt. The cost of long-term debt is 5. 78% (A rating 10-years maturities merged bonds) , and the value of long term debt is $2500M. Thus, RB=5. 78%. For the value of equity and debt, mart value weights are more h old than book value weights, because the mart determine of the securities are closer to the actual dollars that would be received from their sale. There are the commercialize weights expected to prevail over the invigoration of the firm or the final cause.S=500? $24. 00=$12,000M B=$2500 RWACC=1200012000+3000? 11. 20%+300012000+3000? 5. 88%=9. 76% retribution rate of flow YEAR 2007 2008 2009 2010 2011 2012 2013 Total CF of enthronement -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 vengeance occlusion YEAR 2007 2008 2009 2010 2011 2012 2013 Total CF of enthronization -16 -2. 4 -0. 6 0 0 0 2. 08 discounted CF of enthronement -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 system Method YEAR 2007 2008 2009 2010 2011 2012 2013 average gain income -0. 12 1. 5 1. 5 1. 5 1. 5 1. 5 1. 23 coronation 16 15. 4 13 10 7 4 0 9. 34 Thus, AAR=Average force out incomeAverage investment=1. 239. 34=13. 16%Weighted Average court of CapitalWACC Weighted average cost of capital =WACC= SS+B? Rs+BS+B? RB? 1-tC note Rs , cost of equity RB , cost of debt tC , corporal 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 write up Company is 1. 10 the Market take chances 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 make sense long of this program is more closer to 10-years, we choose the 10-year government bonds as take a chance free rate, 4. 60%.Thus, Rs=4. 60%+1. 10? 6. 0% =11. 20%. For the cost of debt, in that respect are two kinds of debts of Worldwide reputation Company, bank loan and long-term debt. The cost of long-term debt is 5. 78% (A rating 10-years maturities corporeal bonds) , and the value of long term debt is $2500M. Thus, RB=5. 78%. For the value of equity and debt, commercialise value weights are more seize than book value weights, because the market set 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 report 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%