QUESTION -2 15+ 15 30 marks) Alfa Ltd operates a quite successful chain of milk products and tea houses across Asia, Alfa plans to expand its business in Australia. Therefore, Alfa needs some funds for this investment. The company balance sheet in Australian Dollars(AS) is as follows South East s & G Inc.'s cat Cash Accounts receivable Inventories Net fixed assets Total assets 1,500,000 2.400,000 1,100,000 Debentures ($100 4,500,000 Common Stocks 9,500,000 Total Debt and Equity 9,500,000 000,000 D 4 500 000 Nowadays the company's common equity is selling for a price equal to2 times its book value and the Alfa's uses 15 percent to evaluate investments. The current return for Alfa debentures is 3% above the government bond rate. Currently Alfa's debentures were trading at $9850 value. (Return on market portfolio is 14.5 percent and Commonwealth Government bond rate S 4.5 per cent and Alfa's beta is 1.5. The firm faces a tax rate of 30 per cent. a. Estimate the weighted average cost of capital and how acceptable is the investment b. Assume the following and determine what the firm's weighted at 15 per cent? (15 marks) average cost of capital is - Alfa's stock price rises such that it is sold at 3 times its book value and the uses 16.5 per cent to evaluate the investment. Is this rate acceptable? (Assume the cost of debt and tax rate do not change). (15 marks) Pase wW Tota b. CAPM . Rf + [Rm-Rf] ions