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Hello, Please help with my accounting homework! Scenario: This time, imagine you are a recent graduate and have started working for PureMeat Company, a small

Hello, Please help with my accounting homework!

Scenario:

This time, imagine you are a recent graduate and have started working for PureMeat Company, a small but successful meat processing business that delivers premium cuts fresh, packaged and frozen to all supermarket chains across both the South and North Islands of New Zealand. PureMeat is currently in the process of evaluating whether to expand its business into Asian countries. The most recent balance sheet at fiscal year end 2021 is as follows:

PureMeat Corporation Balance Sheet as at 30 April 2021

Assets

$000

Liabilities & Equity

$000

Cash

75

Accounts Payable

672

Accounts Receivable

855

Accrued Marketing Expense

9

Inventory

650

Accrued G&A Expense

18

Total Current Assets

1,580

Total Current Debt

699

Fixed Assets

1,957

Long Term Debt

700

Accumulated Depreciation

(795)

Share capital

950

Net Fixed Assets

1,162

Retained Earnings

393

Total Assets

2,742

Total Debt and Equity

2,742

The company has 550,000 shares outstanding, which are selling for $3.98 per share.

Its debt is selling at book value with a yield to maturity of 8.8%.

From available market data you estimate the return on the market and inflation to be 9.5% and 1.5% respectively.

The company's beta is 1.45 and the company tax rate in New Zealand is 28%.

Questions:

a. Calculate the companys cost of debt before and after taking the tax deductibility of interest payments into account.

b. Calculate the cost of equity.

c. Calculate the weighted average cost of capital.

d. Based on a rough estimate of the project's free cash flows that management provided, you calculate a large internal rate of return of 27.5%. Despite your concerns that the management might be a little too optimistic with their forecasts, would you recommend pursuing the international expansion into Asia?

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