WACC

Capital Structures Market Values Cost of capital Weighting WACC

Share Capital 35,000,000 9% 0.39 4%
Debentures 5,437,500 6% 0.06 0%
Redeemable preference shares 48,989,122 9% 0.55 5% 2C
89,426,622 9%

Workings
Share capital
w1 Cost of capital
Ke= Rf+(Rm-Rf)B
Ke 9.118% 1C

Rf 6% risk free rate taken as it matches the 5 year project 1

Rm 8% market rate 1
B (levered beta) 1.56

c1 Levered Beta for proxy firm 1.25 beta of British chocolate manufacture as it is in the same industry as Barry 1
Unlevered Beta BL/1+(1-t)xDebt/equity )
0.996 1
Levered Beta for Barry Bu(1+(1-t)x Debt/equity))
1.56 1

Market value for Share Capital 35,000,000 given 1

Redeemable preference shares

w2 Cost of capital
Kd= i(1-T)
9% preference are not tax deductible 1

w3 Market value Is the PV of redeemable preference shares

FV - 53,500,000 1
i 9% 1
n 8 1
PMT - 4,000,000 1
PV? 48,989,122

Debentures
Cost (after tax) 6% 1
Value 5,437,500.00 1

Available 16
Max 16
 0 1 2 3 4 5
Sales(w1) 3,588,000 3,507,270 3,577,415 3,648,964 3,721,943 1 C
Franchise fees - 17,940 - 17,536 - 17,887 - 18,245 - 18,610 1 C
Feasibility fees - 5,000 1
ZIPO registration-sunk cost - 1
Operational cost (W3) - 2,990,000 - 2,697,900 - 2,751,858 - 2,806,895 - 2,863,033 1
Sponsorship deal - 94,000 - 76,000 - 64,000 - 64,000 - 58,000 1
Brewery Equipment - 7,421,600 120,000 3 one mark for cost and duty, one m
Brewery Equipment inspection costs - 50,000 - 50,000 1
Dismantling cost of Brewery equipment - 10,000 1
Specialised training - 5,000 1
Salary increment (relevant cost) - 30,000 - 30,000 - 30,000 - 30,000 - 30,000 1
Netcashflows - 7,431,600 456,060 685,834 663,670 729,824 812,300
Taxation 345,917 289,117 294,596 278,242 - 200,801 1 C
After tax cashflows - 7,431,600 456,060 685,834 663,670 729,824 812,300

Discount rate (REQ b ) 9% 1 C

NPV - 4,475,691 1 C

Reject project as it has negative NPV 1 C

Workings
(W1)
Demand per capita at 2% annual growth 23 23.46 23.93 24.41 24.90 1
Market capture 100,000 100,000 100,000 100,000 100,000 1
Total demand 2,300,000 2,346,000 2,392,920 2,440,778 2,489,594 1
Selling price 1.56 1.49 1.49 1.49 1.49 1
Sales value 3,588,000 3,507,270 3,577,415 3,648,964 3,721,943
Production cost(W3) -2990000 - 2,697,900 - 2,751,858 - 2,806,895 - 2,863,033 1

W2 taxation
Net Cashflows 456,060 685,834 663,670 729,824 812,300 1
Scrap value - 120,000 1
Less capital allowances - 1,855,400 - 1,855,400 - 1,855,400 - 1,855,400 - 2 One mark for cost excluding tax an
Recoupment 120,000 1
Taxable income - 1,399,340 - 1,169,566 - 1,191,730 - 1,125,576 812,300
Tax @24.72% - 345,917 - 289,117 - 294,596 - 278,242 200,801 1

Available 28
Maximum 25
 Price per ton USD
Cocoa beans 1391.836735 10,438,775.5 2 one mark for normal loss, one mark for price
Waste particles 3.06122449 22,959.2 1
Further grinding costs 40 300,000.0 1
Variable repairs and maintainance W1 150 1,125,000.0 1C
Fixed overheads (allocated, thus irrelevant) - 1
Salaries and wages 50,000.0 1
Fat extraction machine 60,000.0 1
Total costs 1,235,000.0

Selling Price(@33.333% profit margin) 1,646,666.7 1

Workings Price per tonne 219.56 1C

W1 High low method (950 000-500 000)/(5 000-2 000)

Variable cost per ton 150 2

Fixed costs 637,500 1

Available
Max 13