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Ace Repair Case Study

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Ace Repair Inc. Case Study
The owner of Ace Repair Inc, Peter Vanderhein thought that he needed special expertise for the finance function forced by the rapid growth of the company and he recognized that the estimate of the cost of capital itself was questionable. The controller who is in charge of the financial part has been using book value weights to calculate WACC but it considers only long-term capital value. At this point, the problem is that they want to decide what weights should be used and know how much difference of WACC calculated by the choice of weights and current problems of procedures for estimating the costs of debt and equity.

When Peter Vanderhein was in college as a business student, he found that most shops managed by his uncle did not operate properly by inefficiency in excessive stocks of some items, shortages, late payments and etc. Peter Vanderhein took over shops from his uncle and started Ace Repair, Inc in 1979. After he adopted the new managerial system based on computers and software and he trained his employees in the use of the new equipment, he could expand his business. He bought three additional shops in 1982, and Ace Repair was expanded to 243 shops located throughout the Midwest. Currently, Ace has 6.2261 million common shares outstanding of which Peter owns 17 percent. The stock sells in the over-the-counter market for $30.50 per share. As company grows significantly backed by rapid growth in profits, Peter started to feel that he really needs special expertise in finance because finance is a very important aspect of business management. Finance in business involves decisions relating to the acquisition of funds for an enterprise. Each business strives to use appropriate financial instrument; so he hired Adam Naranjo as vice president and chief financial officer (CFO). Naranjo started to inspect the existing

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