Scribd
Upload
33 views5 pages

Book1 (AutoRecovered)

The document provides information on: 1) Calculating the cost of debt, preferred stock, and ordinary shares for a company. The weighted average cost of capital (WACC) is then calculated using the existing weights. 2) Re-calculating the WACC using target weights for debt, preferred stock, and ordinary shares. 3) Performing a net present value (NPV) analysis and calculating the internal rate of return (IRR) and payback period for a potential project.

Uploaded by

Tayba Awan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
33 views5 pages

Book1 (AutoRecovered)

The document provides information on: 1) Calculating the cost of debt, preferred stock, and ordinary shares for a company. The weighted average cost of capital (WACC) is then calculated using the existing weights. 2) Re-calculating the WACC using target weights for debt, preferred stock, and ordinary shares. 3) Performing a net present value (NPV) analysis and calculating the internal rate of return (IRR) and payback period for a potential project.

Uploaded by

Tayba Awan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 5

a) Cost of Debt

Before tax cost of debt =YTM


YTM using a Calculator = 13.51%
Inputs used are price 965
r 13%
n 20
After tax cost of debt YTM*(1-T)
13.5%*(1-33%)
0.09045
Cost of debt 9.05%

Preffered Stock
11/(100-3)
0.11340206
0.1134

Cost of ordinary shares

5/(83.33-4-5.4)+0.05
0.11763154
0.1176

b) Calculate the WACC given the existing weights

Market Cost of
Value Weight source WACC
Long-term debt 20,00,000 29.63% 9.05% 2.68%
Preference Shares $750,000 11.11% 11.34% 1.26%
Ordinary Shares $40,00,000 59.26% 11.76% 6.97%
Total $6,750,000 100% 10.91%

c) WACC (Using target weight)

9.05%*40%+11.34%*15%+11.76%*45%
0.10613
1.61%

d)
0 1 2 3 4 5

-1600000 700000 700000 700000 700000.0 350000


0.75 0.8 0.8 0.8 0.8 1.0
Sales 525000.0 525000.0 525000.0 525000.0 357000.0
cogs 78750.0 78750.0 78750.0 78750.0 53550.0
Gross Profit 446250.0 446250.0 446250.0 446250.0 303450.0
expense 60000.0 60000.0 60000.0 60000.0 76000.0
EBIT 386250.0 386250.0 386250.0 386250.0 227450.0
Tax 48281.3 48281.3 48281.3 48281.3 28431.3
Net Income 337968.8 337968.8 337968.8 337968.8 199018.8
Salavage value 1600000 397968.8 397968.8 397968.8 397968.8 259018.8
NPV
Cash Flow -1600000 397968.8 397968.8 397968.8 397968.8 259018.8
i=12.5% 49746.0938 49746.09 49746.094 49746.09375 32377.34
PV Of Cashflows $1,682,175
Initial CF 1600000.0
NPV $82,175

IRR IRR 14%


IF IRR >DISCOUNT RATE, NPV WILL BE >0

Payback Period
CF 1600000 397969 397969 397969 397969 259019
Balance 1600000 1202031 804063 406094 8125 -250894
-397968.72

e) CAPM
Stock
Market
YEAR Index Share price returns Krf + B(km-Krf)
2010 2000 $15 67% $0.65
2011 2400 $25 32% $1.05
2012 2900 $33 21% $1.37
2013 3500 $40 13% $1.65
2014 4200 $45 22% $1.85
2015 5000 $55 13% $2.25
2016 5900 $62 10% $2.53
2017 6000 $68 9% $2.77
CAPM 2018 6100 $74 8% $3.01
2019 6200 $80 4% $3.25
2020 6300 $83 -100% $3.38

9%
Covariance 0.401374679

Question no: 3

a) sales of 1100
cost is 800
12% increase in sales
Cost to be incurred - Cash balance available (800+12%) - 400
40012.00%

b)
retained earnings 80

80+12%
-31988.00%
6 7 8

350000 350000 350000


1.0 1.0 1.0
357000.0 357000.0 357000.0
53550.0 53550.0 53550.0
303450.0 303450.0 303450.0
76000.0 76000.0 76000.0
227450.0 227450.0 227450.0
28431.3 28431.3 28431.3
199018.8 199018.8 199018.8
259018.8 259018.8 259018.8

259018.8 259018.8 259018.8


32377.344 32377.344 32377.344

259019 259019 259019


-509913 -768931 -1027950

Krf + B(km-Krf)

You might also like