HCL Electronics

10-year marketing campaign whereby the credit terms to customers will be relaxed together with other marketing strategies. This campaign would result in a (forecasted) increase in sales of 3,000 units per year and a cash expense of $50,000 per year.

The new warehouse facility would cost $600,000. It will have ten-year usable life and would be depreciated over its life using the straight-line depreciation method (assume no salvage value).

Total variable costs are estimated at $200 per unit, which includes material and labour costs. The unit selling price of the product is $260.

As per the above forecasts and assume they remain the same every year, the 10-year marketing campaign and cost-saving due to the acquisition of the new facility would generate free cash flows of $109,000 per year.

HCL has a 30% tax rate and the company's liabilities amount to 60% of the total asset.

(i) Treasury bonds with $1,000 face value, 10 years to maturity, annual coupons of $50, and yield to maturity of 3% per year, which currently trading at the price of $1100 per unit, and (ii) Ordinary shares of company XYZ, which just paid a dividend of $0.50 per share, with dividend growth prospects of 4% per year and required rate of return of 8%. The share is currently trading at a price of $14.

What is the:

• Market price
• Dividend (Div1)
• Rate of grow
• cost of equity
• market price (PV)
• Number of payment period (nper)
• Period Payment (Pmt)
• Face value (Fv)
• YTM Tax rate After-tax cost of debt
• debt
• ordinary shares