Kansas Tech Company
You are working as a financial consultant for Kansas Tech Company, a (hypothetical) publicly traded firm. Dorothy Manu, the CEO of the company, has been frustrated with the traditional cost of capital calculations typically introduced in conventional finance textbook for several reasons. Ms. Manu turned to a journal that is most popular among corporate finance practitioners called Journal of Applied Corporate Finance. It is a highly regarded journal that summarises/digests the latest development and debates in corporate finance to audiences. In a rather recent issue, she has found an article that offers a new way to calculate the cost of capital for a company called EACC . Ms. Manu is extremely excited about this and has asked you to do the following for her:
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Calculate EACC for Kansas Tech Company based on the data source provided. This dataset was prepared (collected and manually keyed in) by an intern who delivered it in a rush due to work overload placed on him lately. Also provide a brief discussion on which version of total capital should be used if the companys stock is thinly traded in the share market.
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Kansas Tech Company (collected by an intern) Stock price 40 41 415 41 42 43 44 42 41 39 39 40 41 Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues 30,000,000 32000000 34000000 33000000 31000000 35000000 40000000 42000000 39500000 36000000 38000000 40000000 40000000 41000000 42000000 42400000 46000000 47000000 42000000 43000000 44000000 47000000 49000000 50000000 52000000 54000000 53000000 COGS 20000000 19500000 19000000 16500000 15500000 17500000 20000000 2100000000 19750000 18000000 19000000 20000000 20000000 22550000 23100000 23320000 25300000 25850000 23100000 23650000 24200000 25850000 26950000 27500000 31200000 32400000 31800000 Other expenses 1500000 1300000 1400000 1442000 1485260 1529818 1575712 1622984 1671673 1721823 1773478 1826682 1881483 1937927 1996065 2055947 2117626 2181154 2246589 2313987 2383406 2454908 2528556 2604412 2682545 2763021 2845912 Depreciation 1000000 1000000 1000000 1000000 1000000 1200000 1260000 1323000 1389150 1458608 1531538 1608115 1688521 1772947 1861594 1954674 2052407 2155028 2262779 2375918 2200000 2100000 2000000 1900000 1900000 1800000 1800000 Amortization 500000 400000 400000 400000 400000 400000 400000 400000 400000 600000 600000 600000 600000 600000 600000 600000 600000 600000 600000 600000 650000 660000 680000 720000 750000 740000 720000 Interest expenses 3000000 2900000 2800000 2828000 2856280 2884843 2913691 2942828 2972256 3001979 3031999 3062319 3092942 3123871 3155110 3186661 3218528 3250713 3283220 3316052 3349213 3382705 3416532 3450697 3485204 3520056 3555257 Tax rate 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 28% 28% 28% 28% 28% 28% 28% 28% 78% 28% 28% 28% 28% BV of equity 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 300000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 40000000 40000000 40000000 40000000 40000000 40000000 40000000 40000000 # of shares 1000000 1000000 1000000 1000000 1000000 10000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 10000000 1000000 1000000 1300000 1300000 1300000 1300000 1300000 13000000 1300000 1300000 Long-term debt (BV = MV) 25000000 25200000 25500000 25755000 26012550 26272676 26535402 26800756 27068764 27339451 27612846 27888974 28167864 28449543 27500000 27500000 27500000 27500000 27500000 25000000 25000000 25000000 25000000 25000000 25000000 25000000 25000000 42 43 44 45 46 47 45 47 49 51 52 53 53 55 Kansas Tech Company (collected by an intern) Stock price 40 41 415 41 42 43 44 42 41 39 39 40 41 Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues 30,000,000 32000000 34000000 33000000 31000000 35000000 40000000 42000000 39500000 36000000 38000000 40000000 40000000 41000000 42000000 42400000 46000000 47000000 42000000 43000000 44000000 47000000 49000000 50000000 52000000 54000000 53000000 COGS 20000000 19500000 19000000 16500000 15500000 17500000 20000000 2100000000 19750000 18000000 19000000 20000000 20000000 22550000 23100000 23320000 25300000 25850000 23100000 23650000 24200000 25850000 26950000 27500000 31200000 32400000 31800000 Other expenses 1500000 1300000 1400000 1442000 1485260 1529818 1575712 1622984 1671673 1721823 1773478 1826682 1881483 1937927 1996065 2055947 2117626 2181154 2246589 2313987 2383406 2454908 2528556 2604412 2682545 2763021 2845912 Depreciation 1000000 1000000 1000000 1000000 1000000 1200000 1260000 1323000 1389150 1458608 1531538 1608115 1688521 1772947 1861594 1954674 2052407 2155028 2262779 2375918 2200000 2100000 2000000 1900000 1900000 1800000 1800000 Amortization 500000 400000 400000 400000 400000 400000 400000 400000 400000 600000 600000 600000 600000 600000 600000 600000 600000 600000 600000 600000 650000 660000 680000 720000 750000 740000 720000 Interest expenses 3000000 2900000 2800000 2828000 2856280 2884843 2913691 2942828 2972256 3001979 3031999 3062319 3092942 3123871 3155110 3186661 3218528 3250713 3283220 3316052 3349213 3382705 3416532 3450697 3485204 3520056 3555257 Tax rate 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 28% 28% 28% 28% 28% 28% 28% 28% 78% 28% 28% 28% 28% BV of equity 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 300000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 30000000 40000000 40000000 40000000 40000000 40000000 40000000 40000000 40000000 # of shares 1000000 1000000 1000000 1000000 1000000 10000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 1000000 10000000 1000000 1000000 1300000 1300000 1300000 1300000 1300000 13000000 1300000 1300000 Long-term debt (BV = MV) 25000000 25200000 25500000 25755000 26012550 26272676 26535402 26800756 27068764 27339451 27612846 27888974 28167864 28449543 27500000 27500000 27500000 27500000 27500000 25000000 25000000 25000000 25000000 25000000 25000000 25000000 25000000 42 43 44 45 46 47 45 47 49 51 52 53 53 55
