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Wacc Case Study Solution

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1) It’s considered a high risk of investment when Symonds electronics decide to take a debt in the investment. This issue occurs because normally banks or other parties who provide debts are normally very restricted about their money because they wanted to eliminate any kind of the probability of loss of income. In addition, the debt can be out of control due to market circuimstances and lack of leadership and management.

2) Homemade leverage is the concept of how people leverage themselves in borrowing and lending in the same product as a corporation. People can have the ability to duplicate the effects of corporate leverage on their own. It can be approached when individuals borrow on the same terms as a company; they can get the same affects of corporate leverage on their own.
Homemade leverage can be used by shareholders to create the same payoffs (with taxes).
VL = VU + TC B It’s considered when the firm paid off its debt to shareholders, and then shareholder pays the same amount of payoffs to the brokers.
3) WACC is the average of the costs of all the sources available, it’s calculated by considering the weight for each one of the sources. WACC is useful because it helps in …show more content…

When the company has enough cash to tackle all its costs we consider it having high liquidity which is healthy company. On the other hand, having high debt/asset make the company highly leveraged in which creates dangerous situation if creditors start to demand repayment of debt. It’s a very tricky something in the market when a new company is established showing a good record in the financial statement in order to attract the new investors. Danger can happen in future when something unpredictable in the market causing the escape of the investors and shareholders. Having fixed debt every year annually will help in controlling the business help the investor to concentrate in their company

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