Question

Capital? 13.2 Ferrari's IPO and WACC Ferrari, the famous high- performance automotive group, launched its initial public offering (IPO) on October 20, 2015. Although the share price had initially risen to over 57 euros (€) per share, by the end of the year it had settled to 48 euros (€). Ferrari had been owned by Fiat (Italy). and had never calculated its own cost of capital before, one independent of Fiat. It now needed to, and one of its first challenges was estimating its beta. With only two months of trading to base it on, the corporate treasury group had started with what were considered "comparable firms," which, for Ferrari, meant firms in the luxury goods industry, not auto- motive. Luxury goods were historically less volatile than the market, so the initial guess on Ferrari's beta was 0.90. Using the following assumptions, answer the questions. 13. Value 4.00% Component Italian risk-free cost of debt in euros (€) Ferrari's cost of debt in euros (€) Italian corporate income tax rate Ferrari's prospective beta Italian equity market risk premium (equity return over risk-free) Ferrari's shares outstanding Ferrari's share price in euros Ferrari's debt outstanding in euros 3.99% 33.50% 0.90 5.50% 189,000,000 €48.00 €510,000,000 a. What is Ferrari's cost of debt, after-tax, in euros? b. What is Ferrari's cost of equity in euros? c. What is Ferrari's market capitalization? d. What is Ferrari's total value of equity outstanding?

Answer 1

- Answert pg Noro Let A - 4.00 , B - 3.9906, C-33:50'66 ,0 -0.90 , E=5.60" , F=189,000,000 ,6 = 48.00 and += 510,000,000 @ what is ferrai's cost of debt, after-tax, in euros? cost of debt after tax in euros = 8*(1-c) = 0.0399(1-0.335) = 0.0399 * 0.665 = 0.02653 -2.65%) 6 What is ferrani's cost of equity in euros? cost of equity in euros - A +DE) = 4.004. +(0.90* 5.60%) = 4.00%+0.0496 = 0.0995 (on)18.9614 © what is: Ferrani's market capitalization? Ferrani's market capitalization - ft G = 189,000,000 * 48.00 -19072000000 @ what is Ferrari's total value of equity outstanding? Ferrani's total value of equity outstanding = f*G = 189,000,000 * 48.00 9072000000