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Rafiel co

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Rafiel co

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • March 2, 2019 at 5:55 pm #507211
    WitheringFlower
    Member
    • Topics: 14
    • Replies: 6
    • ☆

    The balance sheet of Rafiel Co shows a financing mix of 50% equity shares ($1 nominal value, $3 market value), 20% retained earnings and 30% loan notes (coupon rate 10%). The cost of equity has been calculated as 15%, and the cost of debt is equivalent to the coupon rate. The loan notes are trading at par.
    what is the best method of calculating WACC?

    a) (15% x 62.5 %) + (10% x 37.5%)
    b) (15% x 85%) + (10% x 15%)
    c) (15% x 83%) +(10% x 17%)
    d) (15% x 70%) +(10% x 30%)

    Could you help me with this question?
    Thank you

    March 3, 2019 at 9:09 am #507251
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    Surely you must have an answer in the same book in which you found the question?!!!

    For every $100 total book value on the SOFP, the nominal value of equity is $50 and therefore the market value is $150.
    Similarly for every $100 total book value on the SOFP, the nominal value of debt is $30 and the market value is also $30.

    Therefore the book values are $150 equity and $30 debt, which in %’s are 83% equity and 17% debt. So it is these %’s that are used for the weighting.

    (It seems as though you are using an old book – we stopped using the term ‘balance sheet’ many years ago.)

    March 9, 2019 at 8:31 am #508756
    WitheringFlower
    Member
    • Topics: 14
    • Replies: 6
    • ☆

    Thank you!!

    March 9, 2019 at 3:18 pm #508814
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54679
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Rafiel co’ is closed to new replies.

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