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Somax (6/96)

This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.

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March 5, 2015 at 9:20 am #231364
student07
Member
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Sir this is question from BPP of 6/96 hope you can find.
I wanted to know the question is asking to find cost of capital that should be used as the discount rate of proposal.
But in solution they are using WACC while,it does mention in the question that that there will be little change in company’s market weighted capital gearing.
Can you please explain this.
Thanks
March 5, 2015 at 10:02 am #231368
John Moffat
Keymaster
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I do not have the question, however we always discount at the WACC unless either there is a change in the level of business risk (in which case we have to use CAPM to find a discount rate) or a major change in the level of gearing (in which case we use APV).
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