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Sir John first of all thank you for the lectures. I just wanted to ask you if we borrowed debt we use return of debt and if we use equity we use return on equity and if we used both we would need wacc. if this correct? so inorder to use the current wacc it should not change due to getting more finance from (debt+ equity) so we we assuume the wacc doesnot change with new finance is this correct?
When we discount new investments we use the WACC and this is on the assumption that the gearing in the company remains unchanged. Obviously in real life this might not be the case, but dealing with changes in the level of gearing is not examinable until Paper AFM.