Explore BrainMass
Share

Weighted Average Cost of Capital (WACC), Adjusted Present Value

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Collect the annual income statements of any company you know well for the last four fiscal years. The selected company must be in the process of expanding its business and plans to invest in a new investment project. As a newly hired MBA in the capital budgeting division you have been asked to evaluate a new project using the Weighted Average Cost of Capital (WACC), Adjusted Present Value (APV), and Flow-to-Equity (FTE) methods. You will need to compute the appropriate costs of capital and the net present values with each method. Because this is your first assignment with the company, they want you to demonstrate your ability to apply the different methods of project evaluation. You must seek required information necessary to determine the free cash flows. Create a spreadsheet in Excel to do all your calculations.

1-Determine the WACC for the company. Compute the NPV of the new project based on the free cash flows you calculated using the WACC method.

2-Determine the NPV using the APV and FTE methods. In both cases, assume the company maintains the target leverage ratio you computed in WACC.

3- Compare the results under the three methods and explain how the resulting NPVs are achieved under each of the three different methods.

Need APA referencing on this tutorial.

© BrainMass Inc. brainmass.com December 20, 2018, 12:42 pm ad1c9bdddf
https://brainmass.com/business/finance/weighted-average-cost-capital-wacc-adjusted-present-value-607315

Solution Preview

The response addresses the query posted in 557 words with APA references (see attachment).

//Project evaluation with using appropriate capital budgeting technique is highly essential to determine risk and returns. Evaluation of a new project not only useful to know about time period involve in getting initial outlay as earlier as possible, while it also exhibits returns earned from the investment. In this context, the following discussion has been presented computation and analysis of different methods of project evaluation to evaluate a new project of the selected company namely Tesco Plc. In the following part, calculations using WACC method is exhibited as under//

Weighted average cost of capital (WACC) method:

For the year 2012, 2013, 2014 and 2015, various statistical figures have been calculated using the income statements of Tesco Plc. The WACC has been calculated by adding the weighted cost of equity and ...

Solution Summary

The response addresses the query posted about the WACC and adjusted present value in 557 words with APA references.

$2.19