XXXXX X
Table 1 shows XXX return XXXXXXXX by the equity XXXXXXX (X.X%) is substantially XXXXXX that XXX return XXXXXXXX XX the XXXX holders (5.X%) since XXX XXXX XXX the XXXXXX XXXXXXX is higher XX XXXXXXX XX XXX risk for XXX XXXX holders. The assets of XXXXXXXXX XXXXXXXX are XXXXXXXX entirely XXXXXXX equity XXXXXX XXXXX it XXX XX debt. XXXXXXXXXXXX, the cost of XXXXXX (X.2%) XXXXXXXX an XXXXXXXX XX the XXXX XX capital, since the XXXXXX XX XXX only XXXXXX of capital. By XXXXXXXXXXXXXX, XXX XXXXXXXX return or cost XX capital XXX Sugarloaf Mountain investments XX assessed XXXXX Torrada’s XXXXXXXX XX XXXXXXXXX Mountain’s cost of XXXXXX, 8.X%. The XXXX XX XXXX XXXXXXX XX lower as compare to equity XXXXXXX XXXXXXX debt XXXXXXX maintained the first claim XX the XXXXXXX. The XXXXXXXX average required return of XXXX and XXXXXX XXXXXXX equal to XXX required return on XXX XXXXXX XXXXXX XXXXX debt XXXXXXX and XXXXXX holders XXXXXXX XX XXXXXX the overall assets XXXXXXX. It XX preferable XX XXX the optimal XXXXXXX XXXXXXXXX weights in XXXXXXXXXX XXX cost of XXXXXXX and it is inappropriate to XXXXXX XXX project if it has an XXXXXXXXXXXXX capital structure. For White Oak the XXXX XXX XX computed just XXXXXXXXXXX XXX weights by the required returns XXXXXXX XXXXX Oak is funded with 30% XXXX XXX 70% equity. XXXXXXX debt payments are tax deductible therefore it XXXX XXXXX Oak XXXX X.3% to XXXXXXX debt XXXXXXX of 5.X% with a XXXXXXXX tax XXXX XX 34% (Michael,2014).
Findings XX Cost XX Capital at XXXXX Bread
XX order to infer XXX XXXXXXXX XXXXXX XXX the XXXXXX of each XXXX the XXXXXXXX average XXXXXXXX XXXXXX of XXXXXX and XXXX XXXXXXXXX. The standard approach XXX XXXX of capital estimation XX XXXXXXXXXX XXXXXXX XXX method XX estimating a XXXXXXXX XXXXXXX cost XX capital (XXXX) by using XXX XXXXXXXX XXXXXXX XX the XXXXXXXXXX costs XX debt XXX equity. Since XXX risk XXXXXXX XXXXXX XX jams and XXXXXXX business is XXXXX XXXXXXXXX XXXX XXX XXXX bakery business of XXX Tasty XXXXX XXXXXXXXX, XXXXX Bread has XXXX excluded. WACC XX Tasty Bread is deemed to suitable for XXXX XXXXXXXX benchmark XXXX XX 7.X%. XXXXX making XXX XXXXXXXXXX decision XXX selection XX comparable firms has XXXX criticism, therefore in order to XXXXXXX XXXX decision XXXX of Tasty Bread XX XXX XXXXXXXX XX the XXXXX the XXXX XX XXXXXXX isn't the XXXX of XXXXX. XXX XXXX XXX jellies investment required to XX more XXXX XXX XXXXXXXXX XX XXXX XXX jellies and not XXX bakery benchmark; XXXX XXX XXXXX XX consider where the money XX going XXX XXX where the XXXXX XX XXXXXX. XXXXX Bread's XXX XXX XXXXXXX XXXXXXXXXX XX XXXXXXXXX XX XXX weighted XXXXXXXX estimates of XXXXX River 8.0%, XXXXX Oak X.8% and Sugarloaf Mountain 8.X%. XXX XXXXXXXXXXX of XXX estimates increased XXX XXXXXXXXXX that the XXXXXXXXXXX hurdle XXXX XXX XXX investment XXXXXXX was X.0% XXXXX XXXX appeared XX XX the XXXXXXXXXX XXXX of capital XXX XXXXXXXXXXX XX XXXXXXX risk. Because XXX 8.0% XXXX of capital XXXXXXXX the expected return of 7.X%.
Recommendations
It XX worth noting XXXX 8.0% XXXX of XXXXXXX XXXXXXX that the XXXXXXXX return of X.X% therefore it XXXXX not create economic XXXXX XXX jam and XXXXXXX XXXXXXXXXX XXXXX XXX XXXXXXX XXXXXXXX. It XX recommended XXX Tasty XXXXX to use a collection XX XXXXXXXXXX firms in order to reduce the estimation XXXXX associated with individual XXXX XXXXXXXXX and X.0% XXXX XX capital is regarded XX XXX appropriate XXXXXXXX for XXXXX XXXXX XXXXX on the cost of XXXXXXX estimates XX XXX comparable XXXXX rather than its own cost XX XXXXXXX. Furthermore, XXX J.X Smucker XXXXXXX can XXXX be XXXXXXXXXXX XX an alternative comparable company XXX XXXXXXXXXX the XXXX of capital XX XXXXX Bread. XXX resulted outcome XX XXXXXXXX average XXXX XX XXXXXXX XX XXXXX XXXXXXXXXX considerations can XXXXXXX XXXX XXX above calculated weighted XXXXXXX cost of XXXXXXX XX three XXXXXXXXXX firms XXX in case if XXXXXXX signals a lower XXXX XXXXXXXXXX then it will XX a XXXX alternative otherwise XXX. XXXXX on XXXX-XX-capital ratio of 15%, cost of equity of X.X%, cost XX XXXX of X.5% XXX XXXX XX XXXXXXX is calculated XX below:
WACC (XXXXXXX) = 0.15 × X.X% × (X − XX%) + X.85 × 8.X% = 7.X>#/i###
XXX calculated XXXX of Smucker is lower as compare to the XXXXX XXXXXXX XXXXXXXXX for XXXXX comparable XXXXX XXXX XX Moose XXXXX, XXXXX Oak XXX Sugarloaf Mountain. It shows the higher XXXX XXXXXXXXXX XXXX firm's XXXXXXXXXX. XXXX XX 7.7% XX these alternative XXXXXXXXXXXXXX XXXXXXXX XXXXXXXXXX to XXXXX the estimated project XXXX of capital XXXX is 7.8% XX how comparable XXXX believed XXXXXXX to XX XX the XXXX of XXX XXXXXXXX project. Based on this fact, it XX XXXXXXXXXXXXX to use the WACC of above calculated XXXXX comparable XXXXX so that there XXX be obtained minimum rate of return XX %X.X XX XXXXX Tasty XXXXX produces value XXX its debt investors XX well as equity XXXXXXXXX (XXXXXXX,XXXX)
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XXXXXXXXXX XX Cost XX Capital. (n.d.). Corporate XXXXXXX: Theory XXX Practice, XX-112. XXX:XX.XXXX/9788132101284.XX
XXXXXXX,S. (2014). The XXXX of Capital- XXXXXXXXXX and Practice. XXXXXX XXXXXXXXXX XXXXXXXX.