LSBF - Mock Q4

Hi Tutor , This is question 4 from LSBF mock exam : ATP plc has recently been listed on the London Stock Exchange. In the previous month, the company announced profits before interest and taxation of £0.5 million and the Board of Directors believes that this level of profits is unlikely to change in the foreseeable future. The dividend policy of the company is to distribute all available profits to shareholders. The company is financed entirely by equity shares but the Board wishes to change its capital structure by issuing £3 million 5% debentures at par and using the proceeds to purchase and cancel some of the equity shares in issue. DIP plc operates within the same industry as ATP plc and is considered to have the same level of business risk. It has a capital structure of 70% equity and 30% loan capital. The equity beta of DIP plc is 1.4 and the loan capital is risk free. The after-tax, risk-free rate of return and returns to the market are 4% and 9% respectively. The rate of corporation tax is 20% =========================================================================================== Could you please help me to understand how they have calculated the WACC and value of company using proposed structure ? To find value of geared company they have used the following formula : V( geared ) = V ( Ungeared ) + Debt * tax = 4347826 + 3000000*0.2 = 4,947,826 WACC = keu ( 1 - DT/ E + D ) = 9.2 ( 1 - 600000/4947826 ) = 8.08 is there a different way to calculate the WACC ? ============================================================================================== I was able to work out the Value of ungeared company as 4,347,826 and Asset beta = 1.043 , Keu = 9.2% , but struggling to work out the value of firm and WACC on using the proposed structure .