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Dear tutor
per request, it asked the impact on WACC, I assume we should calculate WACC before selling EV Clubs and after, and compare both?
look the answer, it only gave after selling EV clubs WACC, (for financial position and EPS, it compared before and after, both)
just wonder the proper way to complete the request.
thanks
also, my calculation WACC before selling is 8.86%, if my calculation is correct, revised WACC is higher than before selling WACC,
but in answering (b), it says “The lower WACC will be brought about by a fall in the cost of equity as well as the fall in the cost of debt. A reduction in the complexity of the business may result in a reduction in central management costs”.I wonder if the quoted sentence is referring revised WACC, it sounds revised WACC should be lower than before selling WACC, what the quoting sentence try to explain here?
I do not know how you calculated 8.86% because the question says (in note 3) that the current WACC is 12%.
When part (a) asks for the impact on the WACC, I would actually have written there that it has fallen from 12% to 9.93%. However the examiners answer has chosen to mention it in his answer to part (b) instead. It doesn’t matter for the marks where you chose to mention it.
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