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Brexylite pic uses WACC as the discount factor for investment appraisal purposes. Any new venture would be expected to achieve a maximum payback period of

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Brexylite pic uses WACC as the discount factor for investment appraisal purposes. Any new venture would be expected to achieve a maximum payback period of 4 years, together with a minimum Return on Capital Employed of 20% (using the average investment method of calculation) The following information is available regarding how the Brexylite Pic is currently financed: -Ordinary Share Capital: Brexylite pic has 20m ordinary shares in issue and each is trading at 108p ex- div. A dividend of 12p per share has just been paid. The dividend growth varies each year. The beta for Brexylite Plc is 1.4. T-Bills are offering 3.5%. The FTSE all index return is 13% -Preference Share Capital: The balance sheet indicates that $2m of preference capital has been issued. They are shown as 5% 80.50 shares. Current share price is 25p per share -Debt Capital: 10% debentures are due to mature in 4 years at par. The current market value of each debenture is $108, and the total book value of the debentures is $5m 8% irredeemable bonds are trading at $97. The interest has just been paid. There are $2m nominal value worth of irredeemable bonds, as per the statement of financial position. .The corporation tax rate applicable is 20%. To raise the funds required for investment on the new machinery and expansion, the board of directors will consider either increasing borrowing or an issue of new shares. The United Kingdom government is currently renegotiating new trade arrangements with the European Union and a few other countries, and the performance of Pro-3 product will depend on the outcome of those negotiations. If the UK government can obtain favourable trading terms, then the sales cash flows from the project could be higher than the current ones. There is. though, a small chance that trade terms will be unfavourable resulting in sales cash flow being marginally less than projected ones

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