Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

can you please answer number 5 with steps... thanks a lot!! Slide, it pays no dividends, and all earnings are relnvested. The required return on

can you please answer number 5 with steps... thanks a lot!! image text in transcribed
Slide, it pays no dividends, and all earnings are relnvested. The required return on equity is 10%. Forecasted earnings in years 1 through 5 are equal to ROE times beginning book value. Calculate the intrinsic value of the company using a residual income model, assuming that after five years, RI stays at 0.44 forever. QUESTION 5 (7 Marks) Mazonga Corp (MC) is a tech compamy, They cater to hospitals mainly. The company has been in existence for past 20 years. Management however feels after the next 15 years, they may shut shop. When they started they had invested $15 millon. Over the past 2 decades, they have grown steadfast. For the next 15 years, they want to focus only on hospitals In York Roglon. They require $5.5 million to keep the business golng. Based on referrals, they are reasonably confident to receive $1 million post tax each year. Cost of equity in this business is pretty high at 18%. Mazonga's CFO runs the financial forecasts and she mentioned she can raise $3 million at 8% net of floatation costs through Scotia Bank. Floatation Cost for debt is 2% and equity is 3%. MC Is In the higher tax bracket of 45%. a) What is the NPV for the project (3 marks) b) of Government were to help MC also $3 million at 5.4% with zero floatation costs, what would the APV bo? (4 maris) af 12 2600 words English (United Kingdom) Focus 22 otv O A w Slide, it pays no dividends, and all earnings are relnvested. The required return on equity is 10%. Forecasted earnings in years 1 through 5 are equal to ROE times beginning book value. Calculate the intrinsic value of the company using a residual income model, assuming that after five years, RI stays at 0.44 forever. QUESTION 5 (7 Marks) Mazonga Corp (MC) is a tech compamy, They cater to hospitals mainly. The company has been in existence for past 20 years. Management however feels after the next 15 years, they may shut shop. When they started they had invested $15 millon. Over the past 2 decades, they have grown steadfast. For the next 15 years, they want to focus only on hospitals In York Roglon. They require $5.5 million to keep the business golng. Based on referrals, they are reasonably confident to receive $1 million post tax each year. Cost of equity in this business is pretty high at 18%. Mazonga's CFO runs the financial forecasts and she mentioned she can raise $3 million at 8% net of floatation costs through Scotia Bank. Floatation Cost for debt is 2% and equity is 3%. MC Is In the higher tax bracket of 45%. a) What is the NPV for the project (3 marks) b) of Government were to help MC also $3 million at 5.4% with zero floatation costs, what would the APV bo? (4 maris) af 12 2600 words English (United Kingdom) Focus 22 otv O A w

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding financial statements

Authors: Lyn M. Fraser, Aileen Ormiston

9th Edition

136086241, 978-0136086246

More Books

Students also viewed these Finance questions