Calculate the weighted average cost of capital

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Question - Corpcon (Pty) Ltd wishes to expand and modernise its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be R130 000. The new roaster will be depreciated over a 5-year straight line period. The company has a chance to sell its 4-year-old roaster for R35 000. The existing roaster originally cost R60 000 and was being depreciated over a 6-year straight-line period. Sales revenue from expansion will amount to R 70 000 per year and operating expenses and other costs (including depreciation) will amount to 29% of sales. Additional information Issued shares: 10 000 000 ordinary shares Debt: R200m Before tax borrowing cost: 12% Share price: R24.00 Latest dividends: R2.40 Expected growth rate: 5% Tax rate: 28%.

Required -

1. Calculate the weighted average cost of capital (WACC).

2. Calculate the net present value (NPV), internal rate of return (IRR) and payback period (PB) of the roaster.

3. State on the basis of NPV and IRR, whether the company should expand and modernise its facilities.

Reference no: EM133039545

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