$1.$ What discount rate should be used in the capital budgeting process? Demonstrate the

calculation process. $[10]$

$2.$ Should NewGen consider proceeding with the Break Project? In this scenario, which

capital budgeting techniques would be appropriate for the NewGen CEO? Demonstrate

the detailed calculation process. $[25]$

$3.$ When NewGen first went public $10$ years ago, they issued an $$600$ million IPO with an

offer price of $$30.$ These shares were underwritten by Goldman Sachs at $$35$ per share.

NewGen's legal fees, ASIC registration fees and other administrative costs were $$2$

million. Their share price rose to $$39\mathrm{.}5$ on the first day. Can you explain why NewGen's

CEO never preferred to issue equity after the IPO? Do you think Goldman Sachs did a

good job as underwriter? Back up your justification with detailed calculations. $[10]$

$4.$ If the Break project goes ahead, analysts expect annual earnings and dividend growth of

$10\%$ for the next three years, followed by $7\mathrm{.}5\%$ for the next two years, before slowing to

$4\%$ per annum indefinitely. NewGen has a dividend payout ratio of $40\%$ and last year had

an EPS of $$6.$ Based on the cost of equity calculated in Q$1,$ what should be the intrinsic

value of NewGen shares today? In this scenario, explain why the temporary supernormal

growth model is more appropriate for valuing NewGen's shares than the constant growth

model or the relative valuation approach? $[8+4=12]$

$5.$ Why do you think valuing NewGen's bonds is a simpler process than valuing equities? $[6]$

$6.$ From an agency conflict perspective, why is the CEO of NewGen Sport skeptical about

this project? $[6]$

$7.$ The NewGen CEO prefers considering the book value of equity and debt in estimating the

appropriate cost of capital. Do you agree with his judgement? Explain your viewpoint with

relevance to the BUSN $9151$ topic content.