Balance Sheet (End of year 2015) I/S (End of Year 2018) Cash 2550 AP 550 Sales 16500 RA 950 Accruals 700 Net Income 10000 Inventory 600 ST Bank loan 900 d 40% CA 1750 CL 1500 FA (Net) Risk Free Market Rate - 3.5% Risk Beta 1.35 Premium -8.5% 1650 LT Loan 950 TA 7000 TL 4600 Terminal Growth = 5% Share Capital 675 *FA will be used at full capacity after 2 years RE 825 OE 900 TL & OE 7000 Q: From the date given above and assumptions given below, find a) Return on Equity (ROE) b) Cost of Equity c) Value of Equity d) Value of Equity at Terminal growth rate of 5% Assumptions: 1. Net Profit Margin till year 2018 was 40% 2. Net profit Margin will increase by 5% in year 3, 4 & 5 3. Sales has been & will increase every year for next 5 years by 6% 4. After year 5, ANI will increase at a constant growth rate of 0% per year, forever 5. Dividend payout was constant till 2018 but will increase by 4% till year 3 but after year 3, Dividend payout ratio will increase by 9% for year 4 & 14% for years. 6. Share Capital will increase by 8% in year 1, 3 & 5