Delta Corporation is expected to grow at a higher rate of years; thereafter the growth rate will fall and stabilise at a lower level. The following information has been assembled:

Base Year (Year 0) Information

	Revenues	$3 000 million
	EBIT	$500 million
	Capital expenditure	$350 million
	Depreciation	$250 million

Working capital as a percentage of revenues	25%
Corporate tax rate (for all time)	30%
Paid up equity capital ($10 par)	$400 million
Market value of debt	$ 1 200 million
Inputs for the high growth phase
Length of high growth phase	4 years
	Growth rate in revenues, depreciation , EBIT	20%
	and capital expenditure
Working capital as a percentage of revenues	25%
Cost of debt (pre-tax)	13%
	Debt-equity ratio	1 : 1
	Risk-free rate	11%
	Market risk premium	7%

5

	Equity beta	1,129
Inputs for the Stable Growth Period
Expected growth rate in revenues and EBIT	10%
Capital expenditures are offset by depreciation
Working capital as a percentage of revenues	25%
Cost of debt (pre-tax)	12,14%
	Risk-free rate	10%
	Market risk premium	6%
	Equity beta	1,0
	Debt-equity ratio	2 : 3

REQUIRED:

1. Calculate the WACC for the high growth phase and the stable growth phase.

1. Calculate the value of the firm.