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Working as an analyst for an important investment bank you must estimate the WACC for Bunhill Spa. Unlevered firms in the same industry have a cost of equity of 17%, and the tax rate is 30%.
a. Calculate the WACC for Bunhill Spa knowing that the firm has assets of £150 million and no debt.
b. Bunhill Spa is evaluating a £50 million loan with a 5% interest rate. Would the cost of equity change after receiving the loan? What would it be?
c. If Bunhill takes the new loan, what would the new WACC be?
d. If Bunhill Spa borrows £100 million and pays a £50 million dividend, what is the new WACC?
e. Until the recent corona crisis you have typically used the WACC, but your boss, who has a lot of experience, suggests that you start using the APV instead. What should you do? Why do you think she suggests this to you? Explain
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1. What is Netflix's long-run objective? How does Netflix plan to achieve its long-run objective? How would you assess Netflix's performance to date?
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