Calculation of WACC, Gearing Ratio, and Capital Structure Theory: A Corporate Finance Analysis

Corporate Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1: Calculation of WACC........................................................................................................1
2: Justification of the calculation............................................................................................3
3: Calculation of gearing ratio and its justification................................................................3
4: Capital structure theory......................................................................................................4
5: Recommendation................................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Corporate finance is basically said to be division of a company that is associated with the
financial as well as investment related decisions. It is primarily associated with maximizing
shareholder values by long as well as short-term financial planning. This project aimed at
providing specific information about the calculation of WACC about it analysis (Brealey and et.
al., 2012). Apart from this, evaluation of the company performance with the help of gearing ratio
is also covered under this report. Along with that evaluation of the finding through capital
structure theory has been find clearly in the below mentioned project report.
TASK 1
1: Calculation of WACC
It is said to be a company’s weighted average cost of capital (WACC) is the normal
interest rate that need to pay for the purpose of assets, growth and working capital. It is also
considered as minimum average rate of return that provides return on their current assets to fulfil
specific requirement of their shareholders such as investors or creditors (Belloc, 2012). It is
basically relying on the Aristocrat leisure limited capital structure and it is the combination of
both debt and equity. Cost of capital is more common concerning about the value of a firm pays
in order to finance their operations without being specific regarding the combination of their
capital structure (Hillier and et. al., 2013). Debt as well as equity tends to make up the capital
structure of Aristocrat leisure ltd, along with other capital on the right hand side of company
balance sheet like as preferred stock. Just as company get started to grow, they may use to get
valuable amount of financing from debt sources as well as irregular preferred reserve sources.
From the above formula,
Re: Cost of equity
1