Question

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Questions 1-4 are interrelated to each other 1. What is the cost of equity of Company A" with outstanding common shares 50 000 units and whose shares are trading at 40$ per stock and that currently pays dividend of 5.05S and will pay dividends constantly (forever) with a fixed growth rate of 3%? Cost of Equity-16.00% 2. "Company A" also issued (1200 in units) with a face value of 1000S and with 6 years to maturity. Current market price of the bond is 960$. Bond's coupon rate is 5%. What is a cost of debt before Corporate Income Tax? a) 4.8% b) 5% c) 5.8% d) 6.4% e) 7% 3. What is a WACC of "Company A" if Corporate Income tax (CIT) is 30%. WACC-11.64% 4. Calculated NP V of "Company A" based on bellow nformation: 1) Initial investment 1 402 000S 2) Sales forecast: First year 3 400 000S and after 1" year sale will grow continuously at 7% comparing to previous year 3) COGS is 60% of sales (constantly). 4) Admin expenses (G&A that also include rent expenses) 5) Depreciation-0 (since no fixed asset but rent) and 6) Business will be terminated at 6 year with no Terminal is fixed 300 000S per year change in NWC-0 which means Net income value FCF PV r 330

Answer 1

1) Price 40

Dividend 5.05

Growth 3%

COE 16.00% =(5.05*(1+3%)/40)+3%

2) FV 1000

Time 6

Price 960

Coupon 50

COD=Yield 5.8% =RATE(6,50,-960,1000,,)

3) WACC

Cost

Equity 2000000 16.00%

Bond 1152000 4.07%

WACC 11.64%

4)   

4) Yr Initial investment Sales forecast COGS SG&A Cash Flow 0 4 402000 3400000 3638000 3892660 4165146 4456706 4768676 2040000 2182800 2335596 2499088 2674024 2861206 300000300000 300000 300000300000 300000 402000 1060000 1155200 1257064 1366058 1482683 1607470 N PV @ 11.64% 4942320.46