Bacchante Co has a capital structure as follows: Bank loans Loan notes Ordinary shares Cost of...

 

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Bacchante Co has a capital structure as follows: Bank loans Loan notes Ordinary shares Cost of capital BV MV $m $m 5 5 6 8 18 39 % 9 12 15 The company's current operations are carried out from two locations. The Oxford factory shows a cash surplus of $1,750,000 on capitalemployed of $27.5 million, while the Cambridge factory produces a cashsurplus of $640,000 on its capital of $3.5 million. It is proposed to invest a further $1.5 million in facilities atCambridge which will increase cash flow by $150,000 to perpetuity. Required: (a) Calculate Bacchante's weighted average cost of capital. (4 marks) (b) Comment on the proposed expansion. Bacchante Co has a capital structure as follows: Bank loans Loan notes Ordinary shares Cost of capital BV MV $m $m 5 5 6 8 18 39 % 9 12 15 The company's current operations are carried out from two locations. The Oxford factory shows a cash surplus of $1,750,000 on capitalemployed of $27.5 million, while the Cambridge factory produces a cashsurplus of $640,000 on its capital of $3.5 million. It is proposed to invest a further $1.5 million in facilities atCambridge which will increase cash flow by $150,000 to perpetuity. Required: (a) Calculate Bacchante's weighted average cost of capital. (4 marks) (b) Comment on the proposed expansion.

Answer rating: 100% (QA)

a Bacchantes weighted average cost of capital is 69 WACC 5 x 005 9 x 008 12 x 006 5 9 12 006... View the full answer