Part 1: Cost of capital CAP GEMINI is an IT consulting and implementation firm. Since 1998, the group has been helping its clients build information systems and applications that transform their companies by intervening on technology, methodology and understanding of business issues. CAP GEMINI believes in the ability of information technology to transform companies and is aware that significant achievements are the result of sharing knowledge and the pleasure of working together. CAP GEMINI is today an international group of 250 employees present in 5 countries: France (headquarters), Morocco, Switzerland, Belgium and Brazil. In 2014, the group achieved a turnover of 27.6 MEUR divided by market between banking-finance-insurance (39.9%), telecom-internet-media-leisure (29%), services-industry-distribution-energy (25.7%) and others (5.4%). The geographical breakdown of revenues is as follows: France (87%), Morocco (6.8%), Switzerland (4.3%), Brazil (1.6%) and Belgium (0.3%). CAP GEMINI's financial structure is essentially composed of : - Equity: its share capital comprises 4,600,000 fully paid-up shares. CAP GEMINI shares are currently trading at an average price of 12. We know that the expected returns on the market portfolio and on the treasury bonds are respectively 7% and 1%. The beta of the company's shares is 1.166. - A bond with a nominal value of 6,000,000 (60,000 bonds with a nominal value of 100), with a nominal rate of 3%, redeemable at par and a remaining maturity of 5 years. The actuarial rate of return offered by the market for loans with the same credit risk is 3.4%. - An undivided loan of 3,000,000 at a fixed rate of 3.8% contracted a year ago and repayable at maturity in 4 years. The market rates for comparable loans are 4.3%. - Cash flow loans of 1,500,000 negotiated with financial institutions at a pre-tax cost of 5%. A corporate tax rate of 1/3 is used for the study. 1. Estimate the value of CAP GEMINI's economic assets and the cost of each source of financing. 2. What is your assessment of the financial structure of this company? 3. Determine and interpret the weighted average cost of capital (WACC)