a.Explain the relevance of WACC for a business? While computing WACC, why do we take after-tax cost of debt and not do similar adjustment in cost of equity? (8 marks)

b.Compute the WACC for the following business.

Consolidated Profit and Loss Statement (in Cr.) Mar-19 Mar-18

Total Revenue 3,04,903.71 2,95,508.07

Finance Costs 5,758.60 4,681.79

Depreciation & Amortisation Expenses 23,590.63 21,553.59

Consolidated Balance Sheet (in Cr.) Mar-19 Mar-18

Total Share Capital 679.22 679.22

Total Reserves and Surplus 59,500.34 94,748.69

Minority Interest 523.06 525.06

Long Term Borrowings 70,973.67 61,199.50

Short Term Borrowings 20,150.26 16,794.85

Cash & Cash Equivalents 32,648.82 34,613.91

Further note that the share price on 31 Mar'19 was 174.3 per share with 359.75 Cr. shares outstanding. Beta of the business is 1.73. Consider corporate tax as 30%.

Compute the following (parts i to iv):

i.Cost of debt using the information provided above. (2 marks)

ii.Cost of equity if the risk-free rate is 6% and market risk premium is 4%. (2 marks)

iii.Capital structure of the business using book value of debt and market value of equity. (2 marks)

iv.WACC of the business using the items computed above.(4 marks)

v.What are some ways through which we can interpret these results? What is your assessment about the health of the business using your computations? (7 marks)