Use wacc as a metric for decision

Assignment Help Financial Accounting

Reference no: EM131810580

Global Works Inc.(GWI) is an all equity firm, currently worth $ 100 million. Cost of equity capital is 20%. The CFO has pitched an exciting idea to the board.

She astutely points out that GWI can borrow at a much lower rate than its cost of equity capital.

This is correct. In abundance of caution, the board has asked you to evaluate the wisdom of the idea, specifically borrow $ 20 mil and use the proceeds to buy back some of the stock in order to lower the cost of capital.

For now, use WACC as a metric for decision. Assume the tax rate is zero. Show the board the following:

5a) Rwacc after buyback _______

5b) Value of remaining equity after buyback_______

Reference no: EM131810580

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