RAWACC is not the same as changing a company’s existing WACC.
RAWACC is a project-specific cost of capital used to appraise a project. It applies when both of the following conditions are met:
1) The project’s business risk is materially different from the company’s core activities. This may be because the project is in a different business area, or because it is a core activity located in a high-risk country.
2) The project will be financed in a way that does not change the company’s existing gearing ratio, so financial risk remains unchanged.
The question may either provide the RAWACC or require you to calculate it. RAWACC is covered under investment appraisal.
By contrast, the questions like Coeden & Kingtim involve restructuring, where the company wants to assess the impact on its existing WACC.
In Coeden, the company contracts by removing one business activity and reducing debt. Kingtim is the opposite: the company expands and takes on more debt.
However, changing WACC and calculating RAWACC require some common skills, including de-gearing and re-gearing betas, calculating bond yields and Kd (1 – t), and applying the WACC formula.
