GAA is considering Investing in MGMT, a tech company. GAA typically takes an equity stake of between 5% and 30% in its investee firmsPublicly listed entities can currently raise capital by issuing convertible subordinated debentures at yields ranging from 5% to 9%. MGMT would utilize part of the funds generated to buy AO tech (AO) for $25 million. this technology will be obsolete in ten years and there is no value after.Please do not round your calculations and only round final answers to second decimal. Calculate the estimated weighted average cost of capital for MGMT assuming an all-equity capital structure. Explain all risk premiums the risk premiums.

operating cash flows

MGMT'S FINANCIAL STATEMENTS Income Statement For the year ended March 31 (in millions of dollars) Total revenue Cost of goods sold Gross profit R&D expense Selling and general admin. Expense EBITDA Depreciation and amortization Interest expense Income before tax Income tax Net Income after tax 2017 2016 2015 99.87 88.64 77.00 20.03 17.73 15.40 79.84 70.91 61.60 11.37 13.80 10.00 34.64 32.75 29.00 33.83 24.36 22.60 10.01 2.57 1.40 1.35 0.95 0.00 22.46 20.84 21.20 6.77 6.36 6.39 15.70 14.48 14.81 MGMT'S FINANCIAL STATEMENTS Balance Sheet As at March 31 (in millions of dollars) 2017 2016 2015 Assets Cash and short-term investments Accounts receivable Other receivables Other current assets Total current assets Net property, plant and equipment Net intangibles Other non-current assets Total Assets $26.20 $21.40 $18.30 12.2 9.1 6.1 5 4.3 5.3 3.4 0.8 $47.10 $36.30 $30.70 2.4 3.1 3.7 29.5 33.68 22.21 5 5.5 6.5 $84.00 $78.58 $63.11 Liabilities Accounts payable Current debt Other current liabilities Total current liabilities Long-term debt Deferred liabilities Total liabilities $7.00 $10.10 $10.80 0.2 5.1 0.1 1.9 1.3 $9.50 $17.10 $12.20 0 0.3 0 $11.40 $17.70 $12.50 2.3 0 1.9 0.6 3.9 3.4 2.6 Shareholders' equity Common stock Other equity Retained earnings Total shareholders' equity Total Liabilities and Equity 2.5 4.1 66.20 53.38 43.01 72.60 60.8850.61 $84.00 $78.58 $63.11 APPENDIX II INVESTMENT BANK'S DRAFT PLAN FOR AN IPO We are pleased to have the opportunity to provide you with the tentative terms of an IPO. By becoming a publicly listed entity, MGMT would gain an additional currency beyond cash: it could use its own shares to pursue acquisition opportunities. From our experience, an IPO typically has the following features and implications: 1-Minimum stock market capitalization (post-IPO) is $215,000,000. 2-Minimum size of share issue is around $50,000,000 to ensure that there is enough liquidity for post- IPO trading and to interest institutional investors, who typically invest at least $500,000 each. 3-Our IPO fees represent 6% of the gross proceeds from the IPO. 4-Legal and accounting costs are $500,000 up front 5-Ongoing costs to remain a publicly listed entity are $1,500,000 per year. 6-MGMT's current internal financial reporting and control systems would require an upfront investment of $1,000,000 to update them so that they could serve a publicly listed entity 7-The firm would need to appoint a formal board of directors and set up an audit committee consisting solely of independent directors. We have used the following assumptions and parameters to estimate MGMT's value as a publicly listed entity 1-Risk-free rate (current 10-year Gover ent bond yield): 3% 2-Estimated market risk premium: 7% 3- Estimated systematic risk (beta) for the video game sector (electronic appl: 1.5 4-Estimated firm-size risk premium for this company: 3% 2018 2019 2020 20 Revenues 99.87 20.03 79.84 11.37 119.84 23.97 95.88 11.98 143.81 172.58 330 138.06 207.09 248.51 374 198.81 COGS 17.73 70.91 13.8 Gross Profit 115.05 165.67 R &D Expense 14.38 17.26 20.71 24.85 Selling and general admin 29 32.75 34.64 39.55 47 46 56.95 82.01 EBITDA 24.36 33.83 53.21 44.34 76.62 20.76 55.87 63.85 91.95 Depreciation 10.01 12.01 14.41 17.30 24.91 amortiz PBIT Interest Expense 21.79 0.95 20.84 6.36 14.48 23.82 32.33 38.80 46.56 67.04 0 income before 21.2 22.47 37.80 11.25 26.55 55.87 16.20 39.67 67.04 19.44 47.60 Income Tax Net Income after tax Capital Expenditure and Intangible invesments Change in Working 6.39 6.77 9.38 14.81 21.95 33.05 4.62 5.32 5.99 8.63 12.43 14.91 0 0 35.95 74.55 15.51 16.38 24.51 68.48 39.23 48.28 57.94 12.86