WACC EXERCISE on Capital Budget

Cost of Debt = Interest Rate

= 2.25%

Cost of Equity = Rf + 𝜷eta x ( Rm - Rf )

= 2.90% + 0.76 x 10.69% 2.90%
= 8.820400%

W.A.C.C. = ( % Debt x Cost of Debt x (1 - tax %)) + (% Equity x

Debt % Equity %
0% 100% 0% x 2.25% x 80% + 100% x
10% 90% 10% x 2.25% x 80% + 90% x
20% 80% 20% x 2.25% x 80% + 80% x
30% 70% 30% x 2.25% x 80% + 70% x
40% 60% 40% x 2.25% x 80% + 60% x
50% 50% 50% x 2.25% x 80% + 50% x
60% 40% 60% x 2.25% x 80% + 40% x
70% 30% 70% x 2.25% x 80% + 30% x
80% 20% 80% x 2.25% x 80% + 20% x
90% 10% 90% x 2.25% x 80% + 10% x
100% 0% 100% x 2.25% x 80% + 0% x
 Recovery
Principal
Cost of Equity) 1,000,000,000 Years
Discount Rate = 1+ 1
8.820400% = 8.820400% 1.09 1,088,204,000
8.820400% = 8.118360% 1.08 1,081,183,600
8.820400% = 7.416320% 1.07 1,074,163,200
8.820400% = 6.714280% 1.07 1,067,142,800
8.820400% = 6.012240% 1.06 1,060,122,400
8.820400% = 5.310200% 1.05 1,053,102,000
8.820400% = 4.608160% 1.05 1,046,081,600
8.820400% = 3.906120% 1.04 1,039,061,200
8.820400% = 3.204080% 1.03 1,032,040,800
8.820400% = 2.502040% 1.03 1,025,020,400
8.820400% = 1.800000% 1.02 1,018,000,000
 2 3 4 5 6 7 8
1,184,187,946 ### ### 1,525,989,656 1,660,588,048 ### ###
1,168,957,977 ### ### 1,477,397,117 1,597,337,534 ### ###
1,153,826,580 ### ### 1,430,050,416 1,536,107,530 ### ###
1,138,793,756 ### ### 1,383,925,440 1,476,846,069 ### ###
1,123,859,503 ### ### 1,338,998,392 1,419,502,189 ### ###
1,109,023,822 ### ### 1,295,245,785 1,364,025,927 ### ###
1,094,286,714 ### ### 1,252,644,442 1,310,368,302 ### ###
1,079,648,177 ### ### 1,211,171,491 1,258,481,303 ### ###
1,065,108,213 ### ### 1,170,804,367 1,208,317,876 ### ###
1,050,666,820 ### ### 1,131,520,806 1,159,831,909 ### ###
1,036,324,000 ### ### 1,093,298,847 1,112,978,226 ### ###
 9 10
### 2,328,644,430
### 2,182,702,242
### 2,045,044,191
### 1,915,249,623
### 1,792,916,694
### 1,677,661,644
### 1,569,118,098
### 1,466,936,381
### 1,370,782,866
### 1,280,339,335
### 1,195,302,368
WACC EXERCISE on Capital Budget

Cost of Debt = Interest Rate

=

Cost of Equity = Rf + 𝜷eta x ( Rm - Rf )

= + x
=

Capital Structure = ( % Debt x Cost of Debt x (1 - tax %)) + (% Equity x

Debt % Equity %
0% 100% x x + x
10% 90% x x + x
20% 80% x x + x
30% 70% x x + x
40% 60% x x + x
50% 50% x x + x
60% 40% x x + x
70% 30% x x + x
80% 20% x x + x
90% 10% x x + x
100% 0% x x + x
 Recall: Future Value formula
FV = PV x (1+discount rate)^years
Weighted
Average
Cost of Recovery
Capital Principal
Cost of Equity) WACC 1,000,000,000 Years
Discount Rate = 1+ 1
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
= 0.000000% 1.00
re Value formula
+discount rate)^years

2 3 4 5 6 7 8
9 10