1. Tour of Addition
So we're going to continue here in the same Excel template,
but as you can see, we've moved over to the second tab labeled
as Addition, so just like before, we're looking for the weighted average
cost of capital in here. The companies decided to proceed with this project,
but the situation is a little different, it plans to add incremental debt
to its existing debt to finance the project.
Now, because the company is leaving its existing debt in place and adding
some new incremental debt, you're going to see as you're building this,
it makes it a little bit more complex than the last situation.
So as you can see here, the company has four different debt options,
that it's evaluating. We're going to give you a hint, the optimal option
is going to be Option B, so we're going to recommend you put
a one in here, just like this. So what you can do down
here is just link up to Option B, and then do a copy,
highlight across Alt ES down to Formulas and hit Enter, so we've pasted
all of those formulas. Now, the right way to do this would be
to replace this with a look up function that looks up here for
the one and then returns Option B, for example. We'll leave that up
to you as to whether or not you want to replace these with
a look up function. Now that you know the debt package here that
the company is going to proceed with, you should have everything that you
need now to complete this section here and all the way down to
the weighted average cost of capital. Now, one hint,
once you have the existing cost of debt here, then the new cost
of the new piece of debt, you're going to need to calculate a
weighted average in this cell that's weighted between the relative weights
of these two costs of debt. Good luck. This one's a little bit
tricky, if you get stuck, we'll definitely help you out in the next
lesson. The other thing that you can try, if you like a challenge,
and these cells up here, in order to fill in these cells properly,
we actually use a one dimensional data table. We're going to link this
cell up to the weighted average cost of capital, and then put the
one dimensional data table in there. If you don't understand what that is,
that's okay, it's pretty rare that you use those. But we'll walk through
it with you, when we look at the solution. Good luck with it.
2. Let's practice!