Fantastic Furniture is experiencing growth over the last few years. Fantastic Furnitures dividends over last few years are:

Year Dividend (in $)

2016 2.7000

2017 2.9160

2018 3.1492

2019 3.4012

2020 _{(current year)} 3.6733

In line with its growth, Fantastic Furniture is considering undertaking an additional investment for expanding their current business operation. It is considering either to have Computer Division or Home Appliance Division. The new projects cash flows are as follows:

Computer Division Home Appliance Division

Year: 0 -200,000 Year: 0 - 150,000

1 +100,000 1 + 65,000

2 + 80,000 2 + 65,000

3 + 90,000 3 + 65,000

The current total market value of the companys shares is $10 million, ex div; and the company currently has 200,000 shares outstanding. The company has a beta of 1.077.

The Computer industry has a beta of 2.1 and the Home Appliance industry has a beta of 0.90. The annual return on three year government bonds is currently 3% and the expected return on the ASX stock market index is 15%. Ignore tax.

Find out the following: (Select the closest answer)

The cost ofequity is Blank 1 Question 6 15.94%16.37%13.81%28.21%18.20% .

Using DVM, the average annual growth rate is Blank 2 Question 6 8.15%7.85%7.99% .

Using CAPM the original cost of capital for Home Appliance Division is Blank 3 Question 6 15.94%16.37%13.81%28.21%18.20% .

Using Cost of capital as the discount rate, we will accept Blank 4 Question 6 Computer DivisionHome Appliance Division .

Using individual companys CAPM as discount rate, we will accept Blank 5 Question 6 Computer DivisionHome Appliance Division .