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need it simple not complicated Located in Fujairah, a company called Oasis Centre Ltd. has been listed on the Abu Dhabi Stock Exchange (ADX) since
need it simple not complicated
Located in Fujairah, a company called Oasis Centre Ltd. has been listed on the Abu Dhabi Stock Exchange (ADX) since 12 December 2012. The company is financed with long-term debt and common equity only, so there is no preferred equity. The company has 350,000 common shares outstanding, and the current share price of the firm's common stock is $25. The Oasis Centre Ltd, will pay a $3.80 dividend per share one year from now, which is expected to grow by a constant 2% per year thereafter. The Oasis Centre Ltd. has 4.000 of 15-year bands outstanding. The current going market interest rate for bonds of a similar risk profile is 4% The coupon payments on the bonds occur on an annual basis and are 6% of the bonds' face value. This year, the management of the Oasis Centre Ltd. has been considering investing into a new 12-year expansion project called "Expo Trinity". They have estimated that investing in this project will generate $1.8 million in annual cash sales and incur cash costs of $1.2 million per year. The project requires an initial $2.4 million investment in fixed assets this year, which due to the absence of the demand, the management believes will be worthless at the end of their useful life. In addition, the project needs $400,000 in additional inventory and a $200,000 increase in accounts receivable, which will also cause an increase in accounts payable of $300,000. Both these amounts are expected to be recovered at the end of the project's life. The firm is subject to a 20% corporate tax rate. a. Based on the company's current capital structure, determine the firm's Weighted Average Cost of Capital (WACC). (2 points) b. Using the forecasts of the company's sales and costs figures, estimate the firm's Cash Flow from. Assets (CEA). (2 points) c. Relying on your answers in part (a) and part (b) above, compute the firm's Net Present Value(NPVI. (0.5 points) d. Advise the management of the Oasis Centre Ltd. on whether they should accept the "Expo Trinity project. Why? (0.5 points) Step by Step Solution
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