Risk free rate = 4.0%

Market risk premium 2 cases

9.0%

8.0%

Beta per Rondo case study

Exec summary please discuss the impact of different market risk premiums on the required rate of return for Rondos stock.

BALANCE SHEET (as of 12/31) ASSETS \begin{tabular}{lrrr} Current Assets & & & \\ Cash & 1,469,000 & 2,032,500 & 2,460,000 \\ Accounts Receivable & 9,000,000 & 9,375,000 & 9,750,000 \\ Inventory & 4,125,000 & 4,625,000 & 5,250,000 \\ \cline { 2 - 4 } Total Current Assets & 14,594,000 & 16,032,500 & 17,460,000 \\ & & & \\ PPE & & & \\ Equipment & 19,000,000 & 18,375,000 & 17,500,000 \\ Property and Plant & 16,000,000 & 15,375,000 & 14,750,000 \\ \cline { 2 - 4 } Total PP\&E & 35,000,000 & 33,750,000 & 32,250,000 \\ & & & \\ \hline TOTAL ASSETS & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} LIABILITIES Current Liabilities \begin{tabular}{lccc} Accounts Payable & 1,500,000 & 2,250,000 & 2,500,000 \\ Current Portion of Bank Loan & 2,500,000 & 2,500,000 & 2,500,000 \\ Accruals & 3,375,000 & 3,500,000 & 3,750,000 \\ \cline { 2 - 4 } Total Current Liabilities & 7,375,000 & 8,250,000 & 8,750,000 \end{tabular} Long-Term Debt Bank Loan Mortgage Bond Total Long-Term Debt \begin{tabular}{lrrr} \hline \multicolumn{1}{c}{ Total Liabilities } & 22,375,000 & 20,750,000 & 18,750,000 \\ \hline & & & \\ Equity & & & \\ Common Stock & 9,587,500 & 9,587,500 & 9,587,500 \\ Retained Earnings & 17,631,500 & 19,445,000 & 21,372,500 \\ \cline { 2 - 4 } Total Equity & 27,219,000 & 29,032,500 & 30,960,000 \\ & & & \\ \hline TOTAL LIABILITIES \& EQUITY & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} INCOME STATEMENT (for year ending 12/31) Notes to Rondo's Balance Sheet: Bank Loan Information OriginalAmountBorrowedAmountOutstandingDec31,2019InterestRatePrincipalPaymentAmtperYearYearofFinalPaymentInterest&PrincipalPmtsDueMortgageBondInformationOriginalAmountBorrowedAmountOutstandingDec31,2019CouponInterestRatePrincipalPaymentAmtperYearPrincipalPaymentsBegininYearYearofFinalPaymentInterestandPrincipalPmtsDue15,000,0007,500,0006.00%2,500,0002022December315,000,0005,000,0007.50%500,00020242033December BALANCE SHEET (as of 12/31) ASSETS \begin{tabular}{lrrr} Current Assets & & & \\ Cash & 1,469,000 & 2,032,500 & 2,460,000 \\ Accounts Receivable & 9,000,000 & 9,375,000 & 9,750,000 \\ Inventory & 4,125,000 & 4,625,000 & 5,250,000 \\ \cline { 2 - 4 } Total Current Assets & 14,594,000 & 16,032,500 & 17,460,000 \\ & & & \\ PPE & & & \\ Equipment & 19,000,000 & 18,375,000 & 17,500,000 \\ Property and Plant & 16,000,000 & 15,375,000 & 14,750,000 \\ \cline { 2 - 4 } Total PP\&E & 35,000,000 & 33,750,000 & 32,250,000 \\ & & & \\ \hline TOTAL ASSETS & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} LIABILITIES Current Liabilities \begin{tabular}{lccc} Accounts Payable & 1,500,000 & 2,250,000 & 2,500,000 \\ Current Portion of Bank Loan & 2,500,000 & 2,500,000 & 2,500,000 \\ Accruals & 3,375,000 & 3,500,000 & 3,750,000 \\ \cline { 2 - 4 } Total Current Liabilities & 7,375,000 & 8,250,000 & 8,750,000 \end{tabular} Long-Term Debt Bank Loan Mortgage Bond Total Long-Term Debt \begin{tabular}{lrrr} \hline \multicolumn{1}{c}{ Total Liabilities } & 22,375,000 & 20,750,000 & 18,750,000 \\ \hline & & & \\ Equity & & & \\ Common Stock & 9,587,500 & 9,587,500 & 9,587,500 \\ Retained Earnings & 17,631,500 & 19,445,000 & 21,372,500 \\ \cline { 2 - 4 } Total Equity & 27,219,000 & 29,032,500 & 30,960,000 \\ & & & \\ \hline TOTAL LIABILITIES \& EQUITY & 49,594,000 & 49,782,500 & 49,710,000 \\ \hline \end{tabular} INCOME STATEMENT (for year ending 12/31) Notes to Rondo's Balance Sheet: Bank Loan Information OriginalAmountBorrowedAmountOutstandingDec31,2019InterestRatePrincipalPaymentAmtperYearYearofFinalPaymentInterest&PrincipalPmtsDueMortgageBondInformationOriginalAmountBorrowedAmountOutstandingDec31,2019CouponInterestRatePrincipalPaymentAmtperYearPrincipalPaymentsBegininYearYearofFinalPaymentInterestandPrincipalPmtsDue15,000,0007,500,0006.00%2,500,0002022December315,000,0005,000,0007.50%500,00020242033December