TechnoLink Berhad is currently an unlevered firm with a weighted average cost of capital (WACC) of 25 percent. The earnings before interest and taxes is forecasted to remain at RM80,000.00 annually. The firm wishes to invest in a new project which requires them borrow RM50,000.00 from a local bank that charges 14 percent interest per annum. The current tax rate for the company is 24 percer REQUIRED: Calculate the following: i. value of the firm without debt ii. value of the firm with debt iii. value of equity after market capitalisation iv. cost of equity after market capitalisation v. weighted average cost of capital (WACC) after market capitalisation

TechnoLink Berhad is currently an unlevered firm with a weighted average cost of capital (WACC) of 25 percent. The earnings before interest and taxes is forecasted to remain at RM80,000.00 annually. The firm wishes to invest in a new project which requires them borrow RM50,000.00 from a local bank that charges 14 percent interest per annum. The current tax rate for the company is 24 percer REQUIRED: Calculate the following: i. value of the firm without debt ii. value of the firm with debt iii. value of equity after market capitalisation iv. cost of equity after market capitalisation v. weighted average cost of capital (WACC) after market capitalisation

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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TechnoLink Berhad is currently an unlevered firm with a weighted average cost of capital (WACC) of 25 percent. The earnings before interest and taxes is forecasted to remain at RM80,000.00 annually. The firm wishes to invest in a new project which requires them to borrow RM50,000.00 from a local bank that charges 14 percent interest per annum. The current tax rate for the company is 24 percent. REQUIRED: Calculate the following: i. value of the firm without debt ii. value of the firm with debt iii. value of equity after market capitalisation iv. cost of equity after market capitalisation v. weighted average cost of capital (WACC) after market capitalisation
Fast Securities Ltd is looking into an investment of $100,000. The investment is expected to generate a net operating profit after tax (NOPAT) of $20,000. Given the firm’s weighted average cost of capital of 10% and tax rate of 20%, calculate the economic value added (EVA) of the investment. Should the firm accept or reject the investment? Give your reason(s).
Sambonoza Enterprises projects its sales next year to be $4 million and expects to earn 5 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections): 1. Current assets will equal 20 percent of sales, and fixed assets will remain at their current level of $1 million. 2. Common equity is currently $0.8 million, and the firm pays out half its after-tax earnings in dividends. 3. The firm has short-term payables and trade credit that normally equal 10 percent of sales, and it has no long- term debt outstanding. What are Sambonoza's financing requirements (i.e., total assets) and discretionary financing needs (DFN) for the coming year?
Southern Timber Company expects to earn $10 million in EBIT in the coming year. After that,its EBIT is expected to grow by 4% per year in perpetuity. Southern Timber is currently anunlevered firm with a cost of capital of 6%. The corporate tax rate is 30%. A panel ofprofessional financial experts indicates that the company can enjoy a tax shield benefit of $20million in firm value if the company changes its capital structure by allowing a certain amountof debt. What would be the value of Southern Timber Company if it decides to undertake thecapital structure suggested by these financial experts? handwrite please
The karson transport company currently has net operating income of $508,000 and pays interest expenses of $205,000. The company plans to borrow $1.03 million on which the firm will pay 11 percent interest. The borrowed money will be used to finance an investment that is expected to increase the firm’s net operating income by $404,000 a year. B. What effect will the loan and the investment have on the firm’s time interest earned ratio? The new times interest ratio is Round to two decimal places.
Southern Timber Company expects to earn $10 million in EBIT in the coming year. After that, its EBIT is expected to grow by 4% per year in perpetuity. Southern Timber is currently an unlevered firm with a cost of capital of 6%. The corporate tax rate is 30%. A panel of professional financial experts indicates that the company can enjoy a tax shield benefit of $20 million in firm value if the company changes its capital structure by allowing a certain amount of debt. What would be the value of Southern Timber Company if it decides to undertake the capital structure suggested by these financial experts?
Liliac Berhad is a unlevered firm with the cost of equity 20 percent per year. Based on the current evaluation made by financial manager, Liliac Berhad expected to earn Earnings before Interest and tax amounted RM600,000 in perpetuity. Liliac Berhad is a company approved with a pioneer status certificate issued by Malaysian Development Investment Authority (MIDA).Required: i. Compute the value of Liliac Berhad. ii. Calculate the weightage average cost of capital for Liliac Berhad if the company decided to change its capital structure by issuing additional debt of RM1,200,000 from RCB Bank to finance new project. The bank charged interest rate 10 percent per annum. Assume that the pioneer status is expired and the corporate tax charged is 24 percent
WoC Inc. wants to increase its free cash flow by P180 million during the coming year, which should result in a higher EVA and stock price. The CFO has made these projections for the upcoming year: * EBIT is projected to equal P850 million. * Gross capital expenditures are expected to total to P360 million versus depreciation of P120 million, so its net capital expenditures should total P240 million. * The tax rate is 40%. * There will be no changes in cash or marketable securities, nor will there be any changes in notes payable or accruals. What increase in net working capital (in millions) would enable the firm to meet its target increase in FCF?
A company has annual after-tax operating cash flows of P2,000,000 per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before tax cost of debt of 5% and an after tax weighted average cost of capital of 8% per year. Corporation tax is 20%. What is the theoretical value of the company? Choices P25m P50m P20m P40m
A company has a target debt-equity ratio of 1:1. It is considering a project requiring Rs. 75 lakhs investment at the beginning. The project is expected to generate post tax cash flows of Rs. 10 lakhs every year for the next 10 years. The firm is considering financing this project using fresh issue of equity and debt in the target debt-equity ratio. The fresh equity has a cost of 20% with floatation costs of 8%. The debt carries a cost of 8% (post-tax) with floatation cost of 2%. i) What is WACC? (Ignore the floatation costs in computing WACC) ii) What is the NPV of the project if floatation cost is adjusted to the initial investment. iv) Should the project be accepted? Need to submit answer in excel format
A company has annual after-tax operating cash flows of P2,000,000 per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before tax cost of debt of 5% and an after tax weighted average cost of capital of 8% per year. Corporation tax is 20%. What is the theoretical value of the company?
PT. Sentosa Raya uses its own capital and debt capital. The agreed cost of debt is 10% and the interest to be paid on the debt is Rp. 3,000,000. The company earned an operating profit of Rp. 24,000,000 per year. The expected return is 30% per year. With these data, determine the value of the company and the company's cost of capital!

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