Case 02

Chapter 11, Question 5

Calculate the cost of equity with the CAPM Calculate the cost od debt based on what the company is currently paying for its debt - Beta of the industry = 1.16 - Equity Risk Premium = 6.97% - Risk-free rate = 3.77% - Objective capital structure of the industry = 13.24%

Consider the following data for the firms Acme and Apex: Acme Apex Required: Equity Debt ($ million) ($ million) 210 1,050 105 350 ROC Cost of Capital (*) (%) 17% 9% 15% 10% a-1. Calculate the economic value added for Acme and Apex. a-2. Which firm has the higher economic value added? b-1. Calculate the economic value added per dollar of invested capital for Acme and Apex. b-2. Which firm has the higher economic value added per dollar of invested capital? Answer is not complete. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 Calculate the economic value added for Acme and Apex. Note: Enter your answers in millions rounded to 2 decimal places. Economic value added for Acme million Economic value added for Apex million

As an Analyst you were tasked to compute for the Weighted Average Cost of Capital of variouscompanies given the following information. Income tax rate is 25% a. What is the cost of equity of each companies?b. What is the after tax cost of debt of each companies?c. What is the WACC of each companies?   W Corp A Corp Co. Corp Ca Corp Risk Free rate 4.00% 3.00% 2.00% 3.50% Beta 1.25 % 1.50% 1.30% 1.40% Market Return 12.00% 11.00 % 10:00% 8:00% Debt to Equity Ratio 2.5 3 4 3.5 Credit Spread om BPS 200 300 250 150

F1

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Q2: For example, a firm's financial data shows the following: Equity = $8,000 Debt = $2,000 Re = 12.5% Rd = 6% Tax rate = 30% Calculate the WACC, enter the values into the equation and solve:

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Given the information below on peer companies A-E, calculate the beta for company F if it has net debt/equity of 0.72 and a tax rate of 25%. 0.98 0.95 1.02 O 1.06 Company ABCDE Betal 1.23 1.18 1.05 0.95 0.91 Net debt / equity 1.45 1.24 0.85 0.59 0.45 tax rate 25% 25% 25% 25% 25%

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Destin Company Information: Total Assets $940,000 Total Liabilities $600,000 Cost of debt 5.8% Risk-free rate 1.97% Beta 0.89 Market Return 10%   A) Using CAPM, what is cost of equity? (so you are not confused, the opportunity cost of using equity is the return we were expecting to receive on the equity).  a)8.03% b)7.77% c) 9.12% d) 8.9% B) What is Destin's Weighted Average Cost of Capital? a) 6.22% b) 5.89% c) 6.07% d) 5.72%

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Plz complete using excel showing formula of work !! The common stock of ABX, Inc. has a beta of 0.90. The Treasury bill rate is 4% and the market risk premium is estimated at 8%. The debt-to-equity ratio of the company is 0.35, the cost of debt is 6%, and the tax rate is 21%. The company is considering a project that will result in initial after-tax cash savings of $5 million at the end of the first year, and these savings will grow at a rate of 4% per year indefinitely. The project is less risky than the usual project the firm undertakes. Management uses the subjective approach and applies an adjustment factor of -1% to the overall cost of capital for similar projects. If the project requires an initial investment of $20 million, what is the NPV?

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15. Use the table for the question(s) below. Name Market Capitalization Enterprise Value Enterprise Enterprise Price/ P/E Value/ Value/ Book ($ million) ($ million) Sales EBITDA Gannet 6350 10,163 7.36 0.73 1.4 5.04 New York Times 2423 3472 18.09 2.64 1.10 7.21 McClatchy 675 3061 9.76 1.68 1.40 5.64 Media General 326 1192 14.89 0.39 1.31 7.65 Lee Enterprises 267 1724 6.55 0.82 1.57 6.65 Average 11.33 1.25 1.35 6.44 Maximum +60% 112% +16% +22% Minimum -40% -69% -18% -19% The table above shows the stock prices and multiples for a number of firms in the newspaper publishing industry. Another newspaper publishing firm (not shown) had sales of $600 million, EBITDA of $84 million, excess cash of $68 million, $18 million of debt, and 120 million shares outstanding. If the average enterprise value to sales for comparable businesses is used, which of the following is the best estimate of the firm's share price? A) $6.45 B) $7.20 C) $7.17 D) $7.53

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4. Please consider the following company items: Other items Market risk premium Long term growth Long term ROCB Tax rate 25% 6.0% 2.0% 0.60 0.30 Unlevered beta Risk free rate 3.0% 9.0% Target debt/equity ratio Bond rating Small firm premium Credit spread debt 2.0% 1.5% BBB What is the Weighted Average Cost of Capital (or WACC) of this company in percentages (%)? Please round your answer to one decimal place, use a period to indicate the decimal place and provide your answer without a percentage sign (e.g. 13.6 instead of 13.6%).

D Question 7 Given are the following data: Cost of debt ro = 6%; Cost of equity = re = 12.1%; Marginal tax rate - 35%; and the firm has 50 percent debt and 50 percent equity. Calculate the after-tax weighted average cost of capital (WACC). O 7.1 percent 9 percent 8 percent O 5.9 percent

F2     A few publicly listed home appliance manufacturing companies have the following beta, debt, and equity:   Company Beta Debt Equity Apple 1.4 ₹     2,500 ₹       3,000 Pear 1.2 ₹             5 ₹           200 Grape 1.2 ₹        540 ₹       2,250 Tomato 0.7 ₹             8 ₹           300 Watermelon 1.5 ₹     2,900 ₹       4,000   Calculate the beta of the industry keeping in mind the publicly listed sector only, with a debt equity ratio of 25%. (Assume a Tax Rate for all companies at 35%) (Hint- One way is to compute the unlevered betas of each of the five firms and then average these unlevered betas and substitute it as the unlevered beta for a private company)

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Qb 08.