Corporate Finance: Analysis of Proposed Project and Weighted Average Cost of Capital

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Author’s Note:

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CORPORATE FINANCE
Table of Contents
Weighted Average Cost of Capital..................................................................................................2
Analysis of the Proposed Project.....................................................................................................2
Best Case Scenario..........................................................................................................................4
Worst Case Scenario........................................................................................................................6
Investment Decisions.......................................................................................................................7
Reference.........................................................................................................................................8

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CORPORATE FINANCE
Weighted Average Cost of Capital
Particulars Details Units
Number of ordinary shares outstanding A 185,000,000
Trading price per share B 7.03$
Current market value of equity C=A*B 1,300,550,000$
Number of bonds outstanding D 300,000
Trading price per bond E 92.34$
Current market value of debt F=D*E 27,702,000$
Total market value of debt and equity G=C+F 1,328,252,000$
Weight of equity H=C/G 97.91%
Weight of debt I=F/G 2.09%
Risk-free rate J 3.50%
Equity beta K 1.13
Market risk premium L 12.52%
Cost of equity M=J+(K*L) 17.65%
Before-tax cost of debt N 0.10%
Tax rate O 34%
After-tax cost of debt P=N*(1-O) 0.07%
Weighted average cost of capital (WACC) (H*M)+P*(1-O)*I 17.28%
Calculation of Weighted Average Cost of Capital
Figure 1: (Table showing computation of Weighted Average Cost of Capital)
Source: (Created by the Author)
Analysis of the Proposed Project
As per the requirement of the assessment, Bega Cheese ltd is planning to further diversify
the business by introducing new products. The business wants to introduce new variety of
yoghurt products for which the business wants to analyze the worthiness of the project on the
basis of normal condition, best condition and worst condition. The analysis will be conducted by
considering techniques like NPV analysis and IRR analysis (Cucchiella, D’Adamo and Gastaldi
2015). On the basis of the results of such techniques decision is to be made by the management