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The Cost of Capital
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</p> <p><b>XXXXX 1</b> </p> <p>Table X shows XXX return required XX the XXXXXX holders (X.8%) is substantially XXXXXX that the return required XX XXX debt holders (X.0%) XXXXX the XXXX for XXX equity holders is XXXXXX XX XXXXXXX XX XXX XXXX for XXX XXXX holders. The assets XX Sugarloaf XXXXXXXX XXX financed entirely XXXXXXX equity claims since it XXX XX debt. XXXXXXXXXXXX, the XXXX XX equity (8.X%) XXXXXXXX an estimate XX the cost of XXXXXXX, XXXXX XXX XXXXXX is XXX only source of XXXXXXX. By interpretation, XXX XXXXXXXX XXXXXX or XXXX of XXXXXXX XXX XXXXXXXXX XXXXXXXX investments XX XXXXXXXX using XXXXXXX’s XXXXXXXX XX XXXXXXXXX XXXXXXXX’s XXXX XX equity, X.2%. The risk of XXXX XXXXXXX XX XXXXX as compare XX equity holders XXXXXXX debt XXXXXXX maintained the XXXXX claim on the returns. XXX XXXXXXXX average required XXXXXX of debt XXX XXXXXX holders equal to the XXXXXXXX return on XXX assets XXXXXX XXXXX debt XXXXXXX and XXXXXX XXXXXXX combine XX obtain XXX overall assets returns. It XX preferable to use the optimal XXXXXXX structure weights in XXXXXXXXXX the cost XX capital and it is inappropriate to reject the project if it XXX an XXXXXXXXXXXXX capital structure. For XXXXX XXX XXX XXXX can be XXXXXXXX just multiplying XXX XXXXXXX XX XXX XXXXXXXX returns because White XXX XX funded with XX% XXXX and XX% equity. Because XXXX payments are tax XXXXXXXXXX therefore it XXXX White Oak only 3.3% XX XXXXXXX XXXX returns of 5.0% with a XXXXXXXX tax XXXX of XX% (Michael,2014). </p> <p><b>XXXXXXXX of XXXX XX XXXXXXX at Tasty XXXXX </b> </p> <p>XX order to XXXXX the XXXXXXXX return XXX the assets XX XXXX XXXX XXX weighted XXXXXXX XXXXXXXX XXXXXX of equity XXX XXXX XXXXXXXXX. XXX standard XXXXXXXX for XXXX of XXXXXXX estimation XX determined through XXX method of XXXXXXXXXX a XXXXXXXX average XXXX XX XXXXXXX (XXXX) XX using the weighted average of XXX XXXXXXXXXX XXXXX of XXXX XXX equity. Since XXX XXXX XXXXXXX linked XX XXXX and jellies XXXXXXXX XX quite XXXXXXXXX from XXX XXXX bakery business XX the Tasty XXXXX therefore, Tasty Bread XXX been excluded. WACC of XXXXX Bread XX deemed XX XXXXXXXX for risk XXXXXXXX XXXXXXXXX that is X.X%. XXXXX XXXXXX XXX XXXXXXXXXX XXXXXXXX XXX XXXXXXXXX of comparable firms XXX some XXXXXXXXX, therefore in order XX justify XXXX XXXXXXXX XXXX of Tasty Bread XX not included XX the XXXXX the cost of XXXXXXX isn't the XXXX of funds. XXX jams XXX XXXXXXX investment XXXXXXXX XX XX more than XXX XXXXXXXXX XX XXXX and jellies and XXX XXX bakery benchmark; this XXX shows to XXXXXXXX where the money is going and not XXXXX the XXXXX XX coming. XXXXX Bread's jam and XXXXXXX XXXXXXXXXX XX XXXXXXXXX XX the XXXXXXXX averages XXXXXXXXX of XXXXX XXXXX 8.0%, White Oak X.8% XXX XXXXXXXXX Mountain X.2%. XXX consistency XX the XXXXXXXXX XXXXXXXXX his XXXXXXXXXX XXXX XXX appropriate XXXXXX XXXX for XXX XXXXXXXXXX project was 8.0% since XXXX appeared to be the XXXXXXXXXX XXXX of capital XXX XXXXXXXXXXX XX XXXXXXX risk. XXXXXXX the X.X% cost XX capital exceeded XXX XXXXXXXX XXXXXX XX X.5%. </p> <p><b>XXXXXXXXXXXXXXX</b> </p> <p>It XX worth XXXXXX XXXX 8.X% cost of capital XXXXXXX XXXX the XXXXXXXX return of 7.5% XXXXXXXXX it would not XXXXXX economic value XXX XXX and jellies investment XXXXX XXX current XXXXXXXX. It XX XXXXXXXXXXX for Tasty Bread XX XXX a collection XX XXXXXXXXXX XXXXX in order XX XXXXXX the estimation XXXXX XXXXXXXXXX XXXX individual XXXX XXXXXXXXX XXX X.0% cost XX XXXXXXX XX regarded as XXX XXXXXXXXXXX estimate for XXXXX Bread based XX XXX cost XX XXXXXXX estimates XX the XXXXXXXXXX XXXXX rather XXXX XXX own XXXX XX XXXXXXX. Furthermore, XXX J.M Smucker XXXXXXX XXX XXXX be recommended XX an XXXXXXXXXXX comparable company XXX XXXXXXXXXX the cost XX XXXXXXX at Tasty XXXXX. XXX XXXXXXXX XXXXXXX of weighted XXXXXXX XXXX of capital XX these additional considerations can compare XXXX XXX XXXXX calculated XXXXXXXX XXXXXXX XXXX XX capital of three comparable XXXXX XXX in case XX XXXXXXX XXXXXXX a XXXXX XXXX associated then it will XX a best XXXXXXXXXXX otherwise not. Based XX debt-to-capital ratio of XX%, XXXX of equity XX 8.X%, XXXX of debt XX X.X% XXX XXXX of Smucker is XXXXXXXXXX as below: </p> <p><i>WACC (XXXXXXX) = 0.15 × 4.X% × (X − 35%) + 0.XX × X.7% = X.7&XX;#/i### </i></p> <p><i>The calculated WACC XX Smucker XX lower as compare to the XXXXX XXXXXXX XXXXXXXXX for XXXXX comparable XXXXX XXXX XX XXXXX XXXXX, XXXXX Oak and Sugarloaf Mountain. It shows XXX XXXXXX XXXX associated XXXX XXXX's XXXXXXXXXX. WACC XX X.X% of XXXXX XXXXXXXXXXX XXXXXXXXXXXXXX provides XXXXXXXXXX XX XXXXX XXX estimated XXXXXXX XXXX XX XXXXXXX XXXX is 7.8% on how XXXXXXXXXX XXXX believed XXXXXXX XX XX XX XXX risk XX XXX proposed project. Based XX XXXX fact, it is recommendable XX XXX the XXXX of above calculated three comparable firms so that XXXXX can XX obtained XXXXXXX rate XX XXXXXX of %7.X XX which XXXXX XXXXX produces value for its debt investors as XXXX XX equity XXXXXXXXX (Michael,XXXX) </i></p> <p><i><b>XXXXXXXXXX</b> </i></p> <p><i>XXXXXXXXXX of XXXX of Capital. (n.d.). <em>XXXXXXXXX Finance: Theory XXX Practice</em>, 86-112. XXX:10.4135/XXXXXXXXXXXXX.XX </i></p> <p><i>XXXXXXX,S. (XXXX). The Cost XX XXXXXXX- XXXXXXXXXX XXX Practice. XXXXXX XXXXXXXXXX Business. </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i><br></i></p>">
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