could you please explain me if we are doing WACC approach, I did not receive same answer like APV interest saved calculation ( 19.64+9=28.64)
KE=20%+0.7(20%-5%)(30/70)=24.5%
WACC= 24.5%*70%+5%*(1-0.3)*30%=17.15%+1.05%=18.2%
NPV = (100)+(40*3.113)=24.52
Why I got these difference?
3.113 is 5 yrs annunity factor @18.2%
I assume cost of debt equl to risk free rate
Thanks
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Impact of Financing - Example 2
9y ago#1I have no idea where you are getting your figures from for the cost of equity!
The risk free rate is 5%, so I don't know why you are writing Ke = 20% plus anything!!!
You would need to calculate the equity beta using the asset beta formula, and then use this in the basic CAPM formula to calculate the cost of equity,
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