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Hi,
i’m struggling to calculate the WACC for this question.
I have got the NOPAT figure of $ 183625
and the Capital employed figure of $600,000
But I am confused on how to calculate the WACC.Please could you help?
WACC = Cost of equity x MVequity/(MVequity + MVdebt) + Post tax cost of debt x MVdebt/(MVequity + MVdebt)
what figures would I use to calculate the WACC?
I have done 0.41 (250,000/600,000) x 12.5% for the equity part and I have done 0.58 (350,000/600,000) x 0.084 which gives me the WACC as 10%
I don’t think this is right.
Please could you explain what the figures would be to calculate the WACC and is the capital employed figure $600,000 that i’m using correct?
Thanks
There’s no need for any of that. Note 2 tells you WACC, the overall cost of capital, is 12.5%.
NOPAT – Notional finance charge = EVA
183,626 – 0.125 X 600000 = 108,626
If 12.5 had been Ke, your approach would have been correct except the cost of debt, 8.4, should be reduced by the tax relief available at 30%.
Thank you for your help with this.
I have done some other examples of EVA and some of the WACC calculations reduce the cost of debt by the tax relief available and some don’t.
How would I know whether to use the tax relief or not?
Thanks
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