WACC for geared and ungeared companies

Hi all!

I was just going through investment appraisal techniques. I found out that Geared company's WACC

	Yasaswi Co. (Geared Company)
	Cost of Capital	Amount	Weights
Term loan	10%	0	0
Debenture	9%	200	0.5
Preference Capital	12%	0	0
Equity Capital	13%	200	0.5
Retained Earnings	13%	0	0
		400	1
	WACC	11%
	IRR	149%
	Debt	200
	Equity	200
	Capital Gearing	50%

is higher due to their costs of capitals than an ungeared company like below:

	Yasaswi Co. (Ungeared Company)
	Cost of Capital	Amount	Weights
Term loan	10%	100	0.01
Debenture	9%	100	0.970001
Preference Capital	12%	100	0.01
Equity Capital	13%	100	0.01
Retained Earnings	13%	0	0
		400	1.000001
	WACC	9%
	IRR	149%
	Debt	300
	Equity	100
	Capital Gearing	75%

Lower WACC can be vice-versa between them as well as it depends upon your capital costs. The IRR here is 149% in both the scenarios as its based on Outflows and Inflows.

Some workings here:

Year	CF	DF @ 10%	DCF	DF @ 15%	DCF	RATE	10%	15%
0	-100	1	-100	1	-100
1	200	0.90909091	181.818182	0.86956522	173.913043
2	100	0.82644628	82.6446281	0.75614367	75.6143667
3	50	0.7513148	37.56574	0.65751623	32.8758116
4	10	0.68301346	6.83013455	0.57175325	5.71753246
NPV	₹ 208.86	₹ 188.12	₹ 208.86		₹ 188.12
IRR @ 10% & 15%	149%	149%	149%	149%

I have done manual appraisal using formulas and used EXCEL ones and all tally! I somehow believe that Gearing wont be necessary if someone can get their FCFF & FCFE projections correct! Thats an another issue at hand for me right now. We'll find out soon!!

Txs