Barling Manufacturing Plc, BM Plc, is a renowned manufacturer of equipment for the farming industry. Mrs Brown is the CEO of the company since two years back and she just hired John Ballwin as her CFO. The board is headed by Angus Johnson and he has a reputation to not let any opportunity to slip in-between his fingers however he is know to carefully scrutinize any initiative that land on his desk. Mr Johnson has delivered the boards decision for financial baseline 2023 to Mrs Brown and Mr Ballwin.          

The base required rate of return, BRRR, is set at 8%. Shareholders of the company requires a return of 17%.           

The base required rate can be added with a risk premium, RP, depending on the nature of investment.            

The set RP's are as follows: RP-1 3%, RP-2 6% and RP-3 8%. The interest to borrow from banks is expected to be 7%.           

Tax rate is set at 20%.           

Any investment has to deliver a return on investment of 10%.  

Required      

Mrs Brown came up to John bright and early this day. She was in a hurry as today she needs to attend the monthly board meeting. She is required to deliver the WACC to the board.      

Short term credit is interest free.      

In summary the balance sheet for BM Plc looks as follows:      

      

Assets  Equity and Liabilities    

Land 1000000 

Buildings 12000000   

Machinery 25000000 

Inventory 13000000     

Accounts Receivables 22000000     

Liquid assets 15000000     

Equity 55000000  

Long term borrowing 25000000

Short term credit 8000000    

      

Calculate WACC      

 

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC for BM Plc well need to consider the differen... View the full answer