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please solve this question asap Case 1: Cost of Capital of Unilever Bangladesh Unilever ple is a British multinational consumer goods company with headquarters in
please solve this question asap
Case 1: Cost of Capital of Unilever Bangladesh Unilever ple is a British multinational consumer goods company with headquarters in London. Unilever products include food, condiments, ice cream, cleaning agents, beauty products, and personal care. Unilever is the largest producer of soap in the world, and its products are available in around 190 countries. The company was founded on 2 September 1929 by the merger of the British soap maker Lever Brothers and the Dutch margarine producer Margarine Unie. During the second half of the 20 th century, the company increasingly diversified from being a maker of products made of oils and fats and expanded its operations worldwide. As a part of its expansion, Unilever started its operations in Bangladesh in 1964, manufacturing and distributing home care products, personal care products, and foods. It is a joint venture of the Govemment of Bangladesh and Unilever. In 2004, Unilever Bangladesh (ULB) changed its former name Lever Brothers Bangladesh Ltd to its present name in December 2004; it is owned 60.4% by Unilever and 39.6% by the Government of Bangladesh. ULB places equal focus on serving the employees and the shareholders, and it is committed to adding value to both. Over the years, the company has built a diversified portfolio of powerful brands, some being household names. The company requires the cost of capital estimates for evaluating its acquisitions, investment decisions and the performance of its businesses, and determining the value added to shareholders. Therefore, it needs to develop a methodology for calculating equity and debt costs and determining the weighted average cost of capital. Table 1 contains a summary of ULB's EPS, DPS, share price and market capitalization over the last five years. The company has been paying dividends regularly, with the constant growth of 10% per year. Table 1: ULB's EPS, DPS, Share Price and MCAP ULB's shares have enjoyed high prices in the stock market. The company's sales and assets have shown significant growth, and the company's profitability has also increased over the years (Table 2). The company considers the cost of its debt as the effective rate of interest applicable to an "AAA' rated company. Considering the trends over the years, it thinks this rate is 9.5 per cent in 2021, which remained the same in the prior two years. The risk-free rate is assumed as the yield on long-term govemment bonds, which the company regards as about 8 per cent. ULB regards the market-risk premium to be equal to about 3 per cent. The company uses CAPM to calculate its cost of equity. The alternative method is the constant growth model. UL.B's beta is 0.708. Answer the following questions: 1. Caleulate ULB's cost of equity for 2019-2021 using the dividend-growth model. 2. Calculate ULB's cost of equity for 2021 by using the CAPM. Do you agree with the company's assumptions regarding the estimates of the risk-free rate? 3. What is your opinion on the trends of ULB's cost of equity, as per the dividend growth model? Between the dividend-growth model and CAPM, which method do you recommend to ULB and why? 4. What is ULB's weighted average cost of capital (WACC) for the last three years? Assume that a corporate tax bracket for ULB was 30% in 2019 , which increases by 5% every year up to 2021. Does the change of tax rate affect ULB's cost of capita? How? 5. Based on the calculations above, comment on the overall financing activities of ULB Step by Step Solution
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