BUSI408-GroupProject2

BUSI408-GroupProject2 - Total debt Total equity Cost of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Total debt Total equity Cost of debt Cost of equity Company Beta Tax rate WACC 300000000 700000000 0.0575 0.06275 1.2 0.35 0.0551375 Cost of equity 0.06275 Risk free rate 0.03125 Market portfolio rate 0.0575 Market premium 0.02625 We are using the US standard 30 year treasury rate 3.125% as risk free rate BBB company market yield to maturity return is 5.75%, which is estimated by the average YTM rate we find from NetAdvantage. This is calculated by taking AVERAG(5.36%,5.98%) Cost of debt 0.0575 The industry YTM rate is 5.75% from NetAdvantage Pure Play Calculations Total debt Total equity Cost of debt Cost of equity new beta Tax rate WACC Cost of equity Risk free rate Market portfolio rate Market premium Cost of Debt 0.3 0.7 0.0575 0.0784472656 1.7979910714 0.4 0.0652630859 0.0784472656 0.03125 0.0575 0.02625 0.0575 new beta of assets (assume beta of debt is 0) Percentage of debt 0.1 Percentage of equity 0.9 Tax rate 0.4 Beta of equity 1.5 beta unlevered 1.40625 Percentage of debt 0.3 Percentage of equity 0.7 Tax rate 0.35 new equity beta 1.7979910714 NPV Analysis for current WACC and new investment WACC g r Term CF PV PV of first 5 years Year 6+ Perpetuity Year 6+ Perpetuity PV NPV r Term CF PV PV of first 5 years Year 6+ perpetuity Year 6+ Perpetuity PV NPV 0.02 0.0551375 0 1 (100000.00) (20000.00) (100000.00) (18954.88) (96285.99) 569192.46 435225.01 338939.02 >0 Accept 0.065263 0.13 0 1 (100000.00) (20000.00) (100000.00) (18774.71) (97222.82) 441862.01 322108.69 224885.87 >0 Accept 2 3 4 (10000.00) 5000.00 15000.00 (8982.18) 4256.40 12101.94 5 20000.00 15292.72 2 3 4 (10000.00) 5000.00 15000.00 (8812.24) 4136.18 11648.34 5 20000.00 14579.61 ...
View Full Document

Page1 / 3

BUSI408-GroupProject2 - Total debt Total equity Cost of...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online