2% 6% 3% 0% 40% Part (0) Interest earned on financial investments Part (ii) Interest on debt 36.50Inflation 73.00 Dividend payout ratio 54.75 Effective tax rate Part (iii) Nominal risky rate 5% Nominal risk-free rate A-ASSUMPTIONS Nominal Sales growth (COGS+SG&A - Depreciation) to Sales Average collection period Average payables period Average inventory days Part (iv) Part (iv) Fixed asset growth Depreciation rate B - PRO FORMAS (in $ thousands) 2021 2022 120000 138000 108000 Income statement Sales - COGS + SG&A (excld. Dep.) - Depreciation expense (1) + Interest income - Interest expense Income before taxes - Income taxes Net income - Dividend Addition to RE DOOR 120 1500 or 0 VoYE 24492.5 Wone 9797 14695.5 LV10 0 14695.5 HO 2021 2022 2021 2022 2021 2022 alance Sheet ssets ash & marketable securities ecounts receivable entories (2) aer current assets 5000 10000 11200 7000 13800 Liabilities and Equity Accounts payable Short-term debt Other current liabilities 17600 9000 4100 21600 10000 5000 10000 14000 Long-term debt Other long-term liabilities 25000 4800 25000 5000 13000 15000 80000 E epreciable assets -cumulated depreciation PP&E (3) 27000 23000 85100 33327.5 Common stock (5) Accum. Retained Earnings (4) Total Liabilities and Equity 29200 50800 10500 110500 14000 non-current assets 110500 Assets 4. Cost of financing firm has $20 m bond that pays 5% coupon semiannually. The bond is due in 5 years and currently trades Next, to estimate its cost of capital, you gather information on the company financing and find that the at 96.8%. The rest of their debt ($5 m) is a bank loan with interest rate at 7%. You also decide to use CAPM to estimate its cost of equity. The company has a beta of 1.25 and 2.5m shares outstanding that are currently trading at $40 a share. Information on market returns is below: Market return Risk-free rate Historical average 12% 4% Current level 10% 3% What is its before-tax cost of debt? [5pt]; cost of equity? [5pt]; WACC? [5pt] 2% 6% 3% 0% 40% Part (0) Interest earned on financial investments Part (ii) Interest on debt 36.50Inflation 73.00 Dividend payout ratio 54.75 Effective tax rate Part (iii) Nominal risky rate 5% Nominal risk-free rate A-ASSUMPTIONS Nominal Sales growth (COGS+SG&A - Depreciation) to Sales Average collection period Average payables period Average inventory days Part (iv) Part (iv) Fixed asset growth Depreciation rate B - PRO FORMAS (in $ thousands) 2021 2022 120000 138000 108000 Income statement Sales - COGS + SG&A (excld. Dep.) - Depreciation expense (1) + Interest income - Interest expense Income before taxes - Income taxes Net income - Dividend Addition to RE DOOR 120 1500 or 0 VoYE 24492.5 Wone 9797 14695.5 LV10 0 14695.5 HO 2021 2022 2021 2022 2021 2022 alance Sheet ssets ash & marketable securities ecounts receivable entories (2) aer current assets 5000 10000 11200 7000 13800 Liabilities and Equity Accounts payable Short-term debt Other current liabilities 17600 9000 4100 21600 10000 5000 10000 14000 Long-term debt Other long-term liabilities 25000 4800 25000 5000 13000 15000 80000 E epreciable assets -cumulated depreciation PP&E (3) 27000 23000 85100 33327.5 Common stock (5) Accum. Retained Earnings (4) Total Liabilities and Equity 29200 50800 10500 110500 14000 non-current assets 110500 Assets 4. Cost of financing firm has $20 m bond that pays 5% coupon semiannually. The bond is due in 5 years and currently trades Next, to estimate its cost of capital, you gather information on the company financing and find that the at 96.8%. The rest of their debt ($5 m) is a bank loan with interest rate at 7%. You also decide to use CAPM to estimate its cost of equity. The company has a beta of 1.25 and 2.5m shares outstanding that are currently trading at $40 a share. Information on market returns is below: Market return Risk-free rate Historical average 12% 4% Current level 10% 3% What is its before-tax cost of debt? [5pt]; cost of equity? [5pt]; WACC? [5pt]
