WACC Calculation assignment

Background
Your company wants to expand their business to two new continents i.e., Europe, USA and Asia.

Assume 30/20/50 capital allocation to Europe, USA, Asia

Total Capital amount of $15m is required.

Company Info

Share value is $10/share

Yearly Dividend payout $0.30/share

Minimum Debt should be 30% of total Capital Requirements – 4 500 000(Rd)

Maximum Debt may not exceed 45% of total Capital Requirements

Company capitalization is $15m

1m shares were issued - ]

EQUITY(Re)

Corporate tax rate is 30%(T)

Existing Debt is 32%(Rd)

Approved stock split is

Common Cost 50%

Preferred Stock 25%
Retained Earnings 25%

Cost of stock split is

Cost of Common Cost 24%

Cost of Preferred Stock 10%
Cost of Retained Earnings 20%

Financiers Requirements

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European Financier prepared to finance only 25% of approved capital at 9%/yr(Re) Interest rate but is
not prepared to finance projects in Asia. They are prepared to finance up to 10% in USA

USA Financier prepared to finance 45% of capital at 21%/yr interest rate for Asia and 17%/yr for Europe
and USA.

Asian Financier is prepared to finance 30% of capital at 15%/yr interest rate for only Asia.

Calculations

1) Calculate Weighted cost of Equity (WACE)

2) Scenario1:
a. Calculate cost of debt with a minimum debt of 30% of total capital
b. Calculate the weighted cost of debt in % per continent and % obtained from each
financier.
c. Calculate the weighted interest rate per region
d. Calculate the weighted interest rate for overall venture
e. Calculate the weighted cost of capital (WACC) in % for each region
f. Calculate the Weighted cost of capital (WACC) in% for overall venture

References

www.investopedia.com

Search for WACC

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