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Hi, I was just wondering if you could check the current working out for questions 1 and 2. It has been previously

stated that the value of debt was only long-term + short-term debt as well. The market value of equity was calculated by $114.33 (current share price) x shares outstanding. The text in red is a guide given to us.


  1. With the help of the Excel spread sheet provided, compute the market debt to equity (D/E) ratio for BOX. Then use it to find the current cost of equity (rE) and the pretax- WACC for BOX. Assuming the cost of unlevered equity (rU) is 12%.
  2. At present Liam is considering the following share repurchase proposal from the firm's CFO: the company could raise $12 billion new debt (on permanent basis) at a competitive rate of 3.25% to repurchase shares. Compute the new market D/E ratio, rE, and the weighted average cost of capital of BOX in this scenario.

Screen Shot 2019-10-02 at 1.51.24 pm.png


Thank you.

Screen Shot 2019-10-02 at 1.51.24 pm.png

Balance Sheet (000s)
Period Ending:
31/12/18
Current Assets
Perfet capital markets
Cash and Cash Equivalents
2,239,900
Net Receivables
1,929,200
01
02
Inventory
14,402,700
Initial
with New Debt
Other Current Assets
1,320,800
Value of debt 000s
22,356,100.00
34,356, 100.00
Total Current Assets
19,892,600
Mkt value of Equity 000s
144,956,834.70
144,956,834.70
Long Term Assets
Total (sum of the above two)
147,312,934.70
179,312,934.70
Fixed Assets
29,536,000
Debt/Equity ratio
).15
0.24
Intangible assets
1,758,900
Debt/Asset ratio (Asset=market value of assets]
0.43
0.66
Other Assets
742,300
Equity/Asset ratio (Asset=market value of assets)
0.23
2.79
Total Assets
51,929,800
rU (pre-tax)
0.12
0.12
rD
3.25%
3.25%
Liabilities & stock holders' Equity:
rE
0. 1308
0.141
Accounts Payable
12,314,900
WACC (only consider tax rate, not ITS)
.12
0.1202
Short Term Debt/Current Portion of Long Term Debt
426,400
Other Current Liabilities
1,908,400
Total Current Liabilities
14,649,700
Working Out Q1
Long Term Debt
21,929,700
Value of Debt =
(426,400 + 21,929,700)
Other Liabilities
2,397,200
Mkt Value of Equity =
(1,267,881 x 114.33)
Deferred Liability Charges
834,600
Total =
(426,400 + 21,929,700) + (1,267,881 x 114.33)
Total Liabilities
39,811,200
Debt/Equity ratio =
22,356,100/144,956,834.70
Stock Holders Equity
12,118,600
Debt/Asset ratio =
22,356, 100/51,929,800
Total Liabilities & Shareholders' Equity
51,929,800
Equity/Asset ratio =
12,118,600/51,929,800
FU (pre-tax) =
Stated in question
rD =
3.25% (below)
rE =
0.12 + 0.15(0.12 - 0.0483)*
pre-tax WACC =
Same as ru
Working Out Q2
Value of Debt =
(426,400 + 21,929,700 + 12,000,000)
Market Value of Debt =
144,956,834.70
Total =
(34,356,100 + 144,956,834.70)
Debt/Equity Ratio =
34,356,100 / 144,956,834.70
Debt/ Asset Ratio =
34,356,100 / 51,929,800
Equity/ Asset Ratio =
144,956,834.70 / 51,929,800
rU =
0.12 (stays the same)
D =
0.0325 (stays the same)
TE =
0.12 + 0.24 (0.12 - 0.0325)
pre-tax WACC =
[(144,956,834.70/179,312,934.70) x 0.141] + [(34,356,100/179,312,934.70) x 0.0325]

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