Finance



ABC Energy Solutions plc - Financial Calculation

(A)Weighted average cost of capital (WACC) for ABC

The equation of WACC of ABC is as followed (Reilly, Frank K. & Brown, Keith C. 2003):

Working

D/C = total liabilities / total capital = debt / (debt + equity)

 

D/E = Debt(liabilities)/equity

 

D/(D+E)

 

E

2.5

Debt to Equity

25%

The relationship between D/E and D/C

 

D/C = D/(D+E)

 

D/E / (1 + D/E)

 

0.2D+0.2(2.5)

 

0.2(2.5)=0.8D

 

Debt Amount

 0.625

re = rf+(rm-rf)*B = 0.04+ (0.1*1.6)

= 0.2

rd = 0.06

E = £2.50

D = £0.625

V = 3.125

Tc = 0.28

WACC= [(2.5/3.125)*0.2]+ [0.625/3.125)*0.06*(1-0.28)

= 0.16864

= 16.86%

(B) Discounted Cash Flow Analysis

Selling units

13,000 pumps

Unit price of sales

€ 4,000

Fixed operating cost

€12m

Annual administration costs €3m

ABC ...