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What is weighted average cost of capital

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Reference no: EM133170889

Answer the following questions

1) What is weighted average cost of capital (WACC) and how is it calculated? Present and interpret formula seen in the weekly lecture.

2) What is the main benefit of debt financing, how does over-indebtedness affect corporate value and can it negate the benefit derived from the tax shield?

3) What are the benefits, costs and risks of an aggressive financing strategy and a conservative financing strategy?

4) How is the optimal CPPC (WACC) determined? Explain your answer.

5) Calculate the CPPC of the company Cacao del Pacifico according to the following data and say what possible aspects could improve this opportunity cost or cost of capital:

Liabilities / Assets: 55%.

Equity / Assets: 45%.

Average cost of liabilities: 9.57%.

Corporate tax rate: 40%.

Risk-free rate on 5-year U.S. Treasury securities: 2.88% Market rates: 10.5%, 10.5% and 10.5%, respectively.

Market rates: 10.5%.

Cacao del Pacifico share beta: 0.80

Translated with www.DeepL.com/Translator (free version)

Reference no: EM133170889

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