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BMAN23000(B) MayJune 2013 Pleasecansomeonehelpwiththis!!! ConsiderWotsitPLC,aUKcompanywithanequitycostofcapitalof15%andadebtcostofcapitalof10%.Thecompanyhasadebttoequityratioofone(D/E=1). Supposethecompanyoperatesinaworldwithouttaxes.Findtheweightedaveragecostofcapitalofthiscompany(assumingnotax).(5marks) Nowsupposethatthecompanyhastopaycorporationtaxatarateof30%,andfindtheafter-taxWACCofthiscompany.Compareandcontrastyourresultinthispartwiththatofpart(i),andbrieflyexplainanydifference.(5marks) Explainwhichofthetworesultsinparts(i)and(ii)istheappropriatecostofcapitaltouseifyouareevaluatinganall-equityfinancedprojectwiththesameriskasWotsitPLC.(5marks)

BMAN23000(B) MayJune 2013
  1. Pleasecansomeonehelpwiththis!!!
  3. ConsiderWotsitPLC,aUKcompanywithanequitycostofcapitalof15%andadebtcostofcapitalof10%.Thecompanyhasadebttoequityratioofone(D/E=1).
    2. Supposethecompanyoperatesinaworldwithouttaxes.Findtheweightedaveragecostofcapitalofthiscompany(assumingnotax).(5marks)
    4. Nowsupposethatthecompanyhastopaycorporationtaxatarateof30%,andfindtheafter-taxWACCofthiscompany.Compareandcontrastyourresultinthispartwiththatofpart(i),andbrieflyexplainanydifference.(5marks)
    6. Explainwhichofthetworesultsinparts(i)and(ii)istheappropriatecostofcapitaltouseifyouareevaluatinganall-equityfinancedprojectwiththesameriskasWotsitPLC.(5marks)

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