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In 2017, Blue Diamond Corp
In 2017, Blue Diamond Corp. was considering a major expansion of its manufacturing operations. The firm has sufficient land to accommodate the doubling of its operations, which will cost Php 200 Million. To raise the needed funds, the company decided to mimic the present capital structure as follows: Source Amount of of Capital Funds Raised Debt Php 80 MM Equity Php 120 MM Total Php 200 MM Percentage After-Tax Cost* of Total of Capital 40% 5.2% 60% 14.5% 100% * Assume that After-Tax Cost of Capital has been appropriately adjusted for any transaction costs incurred in raising funds. What is your estimate of Blue Diamond Corp's WACC?
Expert Solution
WACC=(weight of equity*cost of equity)+(weight of debt*after tax cost of debt)
weight of equity=60%
weight of debt=40%
after tax cost of debt=5.2%
after tax cost of equity=14.5%
WACC=(60%*14.5%)+(40%*5.2%)=10.78%
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