Financial performance extract for Yummy Restaurants, Inc.June 15, 2018

Liabilities

Bank overdraft $52,500,000

Commercial bills $100,500,000

Term loans $105,500,000

10% debentures ($1000 par)$200,000,000

Propertymortgage $215,000,000

Equipment (chattel) mortgage $235,000,000

Shareholders' funds

Paid-up capitalordinary shares ($1 par) $265,000,000

$2.50 Preference shares ($10 par) $120,000,000

$1.50 Convertible preferred shares ($5.00 par)$175,000,000

Additional information:

• The ordinary shares are currently trading at $25.40 per share.
• Government bonds trade at 2.85%, the return on the market portfolio is 8.20%
• Yummy Restaurant's, Inc.beta is 0.85
• Preference shares are trading at $42.50.
• Convertible preference shares are trading at $37.50
• The current return on Yummy! Restaurants, Inc debentures is 2.5% above the government bond rate.
• The corporate tax rate is 25%.
• The interest rate on the property mortgage was 7.50% at the time of the loan. The mortgage could be refinanced today at 6.50%.It has fifteen years remaining.
• The bank overdraft current rate is 7.50%.
• The commercial bills mature in 120 days. The market interest rate for commercial bills is 7.25%
• Term loans mature in 5 years. Current interest rates are 5.50%. Term loans originally had a 7.25% interest rate.
• Debentures are due in 15 years
• Interest is paid semi-annually on all Yummy! Restaurants, Inc. debt (Except commercial bills)

Task:

1.) Which items should be included when calculating this firm's WACC?)

2.) Calculate the present value of each capital asset.

3.) Calculate the total present value of the capital assets and the weight of each capital asset used to calculate WACC.

4.) Calculate the weighted-average cost of capital (WACC.)

5.) The weighted average cost of capital is employed when discounting estimated cash flows of capital investments that have risk that is typical for the company.

6.) Should this rate of return be used to discount the estimated Net Cash Flows from the planned restaurants in Viet Nam? If not, how much should the weighted-average cost of capital be? Explain, in detail, how you determined the expected rate of return.Provide references and citations to support your answer.