McLaren’s IPO and WACC. McLaren, the famous high-performance automotive group, launched its initial public offering (IPO) on October 20, 2019.

Although the share price had initially risen to over 60 pounds ( ) per share, by the end of the year it had settled to 50 pounds ( ). McLaren is owned by Able Group (Ireland) and had never calculated its own cost of capital independent of Able before. It now needed to, and one of its first challenges was estimating its beta. With only two months of trading to base it on, the corporate treasury group had started with what were considered “comparable firms” which, for McLaren, meant firms in the luxury goods industry, not automotive. Luxury goods were historically less volatile than the market, so the initial guess on McLaren’s beta was 0.85. Using the following assumptions, answer the questions.

a. What is McLaren’s cost of debt, after-tax in pounds?

b. What is McLaren’s cost of equity in pounds?

c. What is McLaren’s market capitalization?

d. What is McLaren’s total value of equity outstanding?

e. What proportion of McLaren’s capital structure is debt?

f. What proportion of McLaren’s capital structure is equity?
g. What is McLaren’s weighted average cost of capital?
h. What is McLaren’s WACC if its beta was higher, like other automotive companies, say 1.30?

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Component U.K. risk-free cost of debt in pounds () McLaren's cost of debt in pounds () Value 4.20% 4.00%