Q3. If EBIT in Year 1 is 6.5M (instead of 11.5M, in the attached screenshot), but all other assumptions are the same, what is the internal rate of return to: (i) Senior Debt Investors; (ii) Mezzanine Debt Investors; (iii) Equity Investors?
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Q3. If EBIT in Year 1 is 6.5M (instead of 11.5M, in the attached screenshot), but all other assumptions are the same, what is the
(i) Senior Debt Investors;
(ii) Mezzanine Debt Investors;
(iii) Equity Investors?
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- What is the price per share based on the equity free cash flow model? Year 1: Revenue: 630 Fixed costs: 120 Variable costs: 200 Additional investments in NWC: 10 Additional investments in operating long-term assets: 70 Depreciation: 60 Interest expenses: 35 Newly issued debt: 25 Principal repayment: 15 Cost of equity, Rs: 0.14 Corporate tax rate: 0.40 Growth rate per year: From year 1 through year 5: 0.12 After year 5: 0.05 Market value: Short-term debt: 100 Long-term debt: 600 Common Stock: Market price per share: 18 Number of shares: 100 Select one: a. $16.39 O b. $14.21 O c. $13.09 O d. $15.33 Time left 0:04:22Long-term liabilities - cost of capital A Kokó has determined its optimal structure which is composed of the following sources and target market value Source of Capital proportions. Target Market Proportions 60% Long-term debt Common stock equity 40 Debt: The Kòkò can sell a 15-year, P1,000 par value, 8 percent bond for P1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of P50. Common Stock: A Kòkò's common stock is currently selling for P75 per share. The dividend expected to be paid at the end of the coming year is P5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was P3.10. It is expected that to sell, a new coramon stock issue must be underpriced P2 per share and the Kòkò must pay P1 per share in fletation costs. Additionally, the Kòkò has a marginal tax rate of 40 percent. Page 150 of 161Inflation Adjustments The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $150,000. The project will produce 1,000 cases of mineral water per year indefinitely. The current sales price is $138 per case, and the current cost per case is $105. The firm is taxed at a rate of 34%. Both prices and costs are expected to rise at a rate of 6% per year. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits, because the spring has an indefinite life and will not be depreciated. Should the firm accept the project? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) Suppose that total costs consisted of a fixed cost of $10,000 per year plus variable costs of $95 per unit, and only the variable costs were expected to increase with inflation. Would this make the project better or worse? Continue to assume that the sales price will rise with inflation.
- ABC Enterprise would like to evaluate/analyze an investment proposal. Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14%a. NPV for the period 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.EXCEL COMPUTATION AND FORMULACorporate Finance Application: Require Return for Capital Funding Suppose that TechnoTLC is considering a new project. They are trying to determine the required rate of return for their debt and equity holders. See the information below: A 6.5% percent annual coupon bond with 15 years to maturity, selling for 96% of par. The bonds make annual payments. What is the before tax cost of debt? If the tax rate is 30%, what is the after-tax cost of debt? The firm's beta is 1.5. The risk-free rate is 4.0% and the expected market return is 10%. What is the cost of equity using CAPM? Large companies may usually obtain new capital by either issuing stocks or bonds. What are the 2-3 most important favorable elements (pros) of stocks and 2-3 most favorable aspects of bonds to the issuer? What are the 2-3 negative elements (cons) to consider when issuing stocks and 2-3 cons of issuing bonds?(Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.1 percent. Interest payments are $50.50 and are paid semiannually. The bonds have a current market value of $1,122 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is now $27.25. c. A preferred stock that sells for $150, pays a dividend of 8.8 percent, and has a $100 par value. d. A bond selling to yield 11.8 percent where the firm's tax rate is 34 percent. a. The after-tax cost of debt is %. (Round to two decimal places.)
- The cost of equity of a certain company is calculated based on CAPM (risk free rate 1.75%, market premium 6%, beta 1,1), the nominal cost of a long-term loan amounts to 6%,the nominal cost of capital raised from the issue of bonds amounts to 5.5%. Interest on the bonds is paid twice a year, the loan in contrast is repaid on quarterly basis. We also know that the market value of the share capital equals 1000, the nominal value of shares (appearing in the balance sheet as equity) amounts to 800, the nominal value of the long-term credit: 600, the nominal value of the issued bonds: 300. a. On the basis of the available data please, estimate the cost of equity. b. On the basis of the available data and the information that the tax rate amounts to 19%, please, estimate the value of WACC.ABC Enterprise would like to evaluate/analyze a potential investment.. Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14%a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.(Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.9 percent. Interest payments are $54.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.76 dividend last year. The firm's dividends are expected to continue to grow at 6.8 percent per year, forever. The price of the firm's common stock is now $27.84 c. A preferred stock that sells for $144, pays a dividend of 8.6 percent, and has a $100 par value. d. A bond selling to yield 12.3 percent where the firm's tax rate is 34 percent.
- You are given the following information for a firm: EBIT this period = $18.7 million Depreciation = $2.5 million Net Working Capital Increase = $0 Asset Beta = 1.4 Capital Expenditures = $3.2 million Growth Rate of FCF = 3% Risk Free Rate = 3% Market Risk Premium = 6.3% Using the above data, what is the present value of all FCF?You are looking to purchase Company A. Your projections for the EBITDA of Company A are as follows: EBITDA $21.51 Year 1 $2.0 O $19.77 $21.78 Your cost of capital is 20%. Your investment banker shows you the EBITDA multiples for the following comparable companies: Company x 5.0x Company y 5.50x Company z 6.0x Year 2 $3.0 Given the above information what is the price that you would like to offer to Company A shareholders? Not enough information Year 3 $3.5 None of the above Year 4 $4.0 Year 5 $5.0You are given the following information for a firm: EBIT x (1-T) this period Depreciation Net Working Capital Increase Asset Beta Capital Expenditures Growth Rate of FCF Risk Free Rate = = $17 million $2.4 million $0 1.1 $3.7 million 9% 3% Market Risk Premium Using the above data, what is the present value of all FCF? Don't forget that in applying the growing perpetuity formula, you have to use not this year's FCF, but next period's FCF (multiply this period's FCF by (1 + growth rate of FCF). 6.3% Your answer should be in $millions. For example, if your answer is $7.34 million, then enter 7.34 in the answer box.