Problem
Environ4Us Ltd has the following capital structure.
|
|
Value
|
Cost of funds
|
|
Debt
|
120,000,000
|
3.5%
|
|
Equity
|
180,000,000
|
11.0%
|
• Calculate the weighted average cost of capital for Environ4Us Ltd.
Environ4Us Ltd is planning to restructure. This will involve buying back $100,000,000 worth of shares and selling $100,000,000 worth of bonds (debt).
• Calculate the weighted average cost of capital for Environ4Us Ltd after the firm has changed their capital structure.
• State what has happened to the weighted average cost of capital with the restructure and why.
• What impact will this have on the net present value of the future cash flows for any project Environ4US Ltd undertakes?