Corporate Finance Discussion
Read through the case and answer questions with calculation and explanation: Recommend weighted average costs of capital (i.e., WACCs) for EPCs consumer products, medical devices, and pharmaceutical divisions respectively? (Remember to unlever comparable company betas and to use average betas of the comparable companies in calculating divisional WACCs. Then remember to relever the beta to represent the target leverage ratio in market value terms.) Recommend the types of investments that should be evaluated using EPCs divisional WACCs? Explain what would occur if EPC were to use a single corporate-wide WACC for evaluating investment opportunities in each of its lines of business? What would be the likely consequence for the company over time if this were to occur? Calculate EPCs corporate-wide WACC. (Remember, EPCs corporate-wide beta is 1.04. This beta is based on EPCs historical market leverage ratio.)