Question 1 - Part b (iii)
You'll learn how to calculate a revised weighted average cost of capital (WACC) when a company has multiple sources of financing and business segments.
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In this lesson
- 0:00 Calculating revised cost of capital
- 0:23 Setting up the spreadsheet structure
- 1:21 Identifying old and new debt components
- 2:55 Understanding the revised cost of equity approach
- 4:00 Ungearing the current garden centre beta
- 6:48 Calculating weighted asset beta across divisions
- 8:02 Regearing with new debt included
- 9:54 Applying CAPM to find revised cost of equity
- 10:53 Computing final weighted average cost of capital
About this lesson
This lesson walks you through the complete methodology: ungearing the current equity beta to find the asset beta, calculating a weighted asset beta across different business divisions using non-current asset values, regearing that asset beta with new debt included, and finally applying the capital asset pricing model to determine the revised cost of equity. This multi-step approach is essential for Strategic Business Leader (SBL) case studies where financing decisions and capital structure changes require updated cost of capital calculations. By working methodically through each component—equity values, debt values, tax effects, and risk adjustments—you'll build confidence tackling complex capital structure questions under exam conditions.
Duration: 13m
Transcript
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