Riccarton plc has compiled the following information on its financing costs. Book value () Market...
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Riccarton plc has compiled the following information on its financing costs. Book value () Market value () Cost (%) Type of financing Total debt Ordinary Shares Total 5.5 11,000,000 6,000,000 17,000,000 10,000,000 22,000,000 32,000,000 14.5 The company is in the 28% tax bracket. The firm has a target debt proportion in capital structure of 37.5%. a) Calculate the company's weighted average cost of capital (WACC) using book value weights. (5 marks) b) Calculate the company's weighted average cost of capital using market value weights. (5 marks) c) What is the company's weighted average cost of capital using target capital structure weights? (5 marks) d) Which is the correct WACC (a), (b) or (c)) to be used for project evaluation
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