White plc report Essay Example | Topics and Well Written Essays - 2500 words

White plc report - Essay Example Projects with higher values than the weighted average cost of capital should be accepted. In the case of White plc, the case of this method will help the company since the company dealt with materials handling equipments which belongs to the medium risk industry. The company firstly dealt with just one type of business risk i.e. medium risk. Thus this method has been very useful for the company allowing the company to correctly and accurately use the weighted average cost of capital as the discount rate. b) Redeemable Debentures: In this type the face value of the debentures is repaid to the debentures holders at the end of a particular period. The interest is also paid over this period to the debenture holders (CBDD, 2008). ii) After Tax: It is essential to understand that an important difference between the equity and debt is the interest payment on the debt capital can be reduced from the profits as an expense before charging the tax. In this case the net after the tax will be lower due to the tax savings. It is essential to understand that the cost of redeemable debt and the irredeemable debt would normally remain the same in perfect capital markets for organizations with similar characteristics like the risk, size, earnings, etc. However these will differ in a few cases where the markets are imperfect, the securities offered are different, the business risk that has been anticipated is different and lastly the gearing of the company is higher due to reasons like bankruptcy and financial risks (Scribd, 2008). This method takes into account the risk of a project. The discount rate consists of a) the risk free rate and b) risk premium. The risk adjusted rate is used along with the net present value to obtain the risk adjusted NPV (RANPV) (Free Dictionary, 2008). The methods to calculate the project beta: a) direct estimate