The other homework answers provided don't seem to be quite right so I am asking again, thank you
Part B: Require Return for Capital Funding (Week 5 Milestone)
Suppose that Smith Company is considering a new project. They are trying to determine the required rate of return for their debt and equity holders. See the information below:
- A 7.5% percent annual coupon bond with 20 years to maturity, selling for 104 percent of par. The bonds make semiannual payments. What is the before tax cost of debt? If the tax rate is 40%, what is the after-tax cost of debt?
- The firm's beta is 1.2. The risk-free rate is 4.0% and the expected market return is 9%. What is the cost of equity using CAPM?
Part C: WACC and Capital Budgeting
- Calculate the firm's WACC (using 2018 numbers). (You will need to collect information on the long-term debt and common stock equity from the Balance Sheet. The firm has no preferred stock).
- Use the WACC to calculate NPV and evaluate IRR for proposed capital budgeting projects. Assume the projects are mutually exclusive and the firm has the money available to fund the project.
\begin{tabular}{l|r|} \hline & 12/31/2018 \\ \hline Current Assets & \\ \hline Cash And Cash Equivalents & 8,719,000 \\ \hline Short Term Investments & 270,000 \\ \hline Net Receivables & 7,140,000 \\ \hline Inventory & 3,126,000 \\ \hline Other Current Assets & 2,042,000 \\ \hline Total Current Assets & 21,297,000 \\ \hline Long Term Investments & 2,407,000 \\ \hline Property Plant and & \\ \hline Equipment & 17,587,000 \\ \hline Goodwill & 14,806,000 \\ \hline Intangible Assets & 15,823,000 \\ \hline Other Assets & 5,122,000 \\ \hline Total Assets & 77,042,000 \\ \hline \end{tabular} \begin{tabular}{l|r|} \hline Current Liabilities & \\ \hline Accounts Payable & 7,211,000 \\ \hline Short/Current Long Term & \\ \hline Debt & 3,951,000 \\ \hline Other Current Liabilities & 6,601,000 \\ \hline Total Current Liabilities & 17,763,000 \\ \hline Long Term Debt & 28,293,000 \\ \hline Other Liabilities & 12,611,000 \\ \hline Total Liabilities & 58,667,000 \\ \hline Stockholders' Equity & \\ \hline Total Stockholder Equity & 18,375,000 \\ \hline \end{tabular} \begin{tabular}{|l|c|} \hline Revenue & 12/31/2018 \\ \hline Total Revenue & 51,728,000 \\ \hline Cost of Revenue & 23,502,000 \\ \hline Gross Profit & 28,226,000 \\ \hline & \\ \hline Operating Expenses & \\ \hline Selling General and & 19,184,000 \\ \hline Administrative & 9,042,000 \\ \hline Operating Income or Loss & \\ \hline Income from Continuing & \\ \hline Operations & 1,148,000 \\ \hline Other Income/Expenses Net & 1,220,000 \\ \hline Interest Expense & 6,674,000 \\ \hline Income Before Tax & 2,696,000 \\ \hline & 3,978,000 \\ \hline Income Tax Expense & \\ \hline Net Income & \\ \hline \end{tabular} \begin{tabular}{|l|c|r|r|r|r|} \hline & \multicolumn{1}{|c|}{ Year 0 } & \multicolumn{1}{|c|}{ Year 1 } & \multicolumn{1}{|c|}{ Year 2 } & \multicolumn{1}{|c|}{ Year 3 } & \multicolumn{1}{|c|}{ Year 4 } \\ \hline Project A & 100,000 & 50,000 & 30,000 & 30,000 & 20,000 \\ \hline Project B & 250,000 & 100,000 & 100,000 & 50,000 & 50,000 \\ \hline Project C & 500,000 & 400,000 & 50,000 & 50,000 & 50,000 \\ \hline \end{tabular} \begin{tabular}{l|r|} \hline & 12/31/2018 \\ \hline Current Assets & \\ \hline Cash And Cash Equivalents & 8,719,000 \\ \hline Short Term Investments & 270,000 \\ \hline Net Receivables & 7,140,000 \\ \hline Inventory & 3,126,000 \\ \hline Other Current Assets & 2,042,000 \\ \hline Total Current Assets & 21,297,000 \\ \hline Long Term Investments & 2,407,000 \\ \hline Property Plant and & \\ \hline Equipment & 17,587,000 \\ \hline Goodwill & 14,806,000 \\ \hline Intangible Assets & 15,823,000 \\ \hline Other Assets & 5,122,000 \\ \hline Total Assets & 77,042,000 \\ \hline \end{tabular} \begin{tabular}{l|r|} \hline Current Liabilities & \\ \hline Accounts Payable & 7,211,000 \\ \hline Short/Current Long Term & \\ \hline Debt & 3,951,000 \\ \hline Other Current Liabilities & 6,601,000 \\ \hline Total Current Liabilities & 17,763,000 \\ \hline Long Term Debt & 28,293,000 \\ \hline Other Liabilities & 12,611,000 \\ \hline Total Liabilities & 58,667,000 \\ \hline Stockholders' Equity & \\ \hline Total Stockholder Equity & 18,375,000 \\ \hline \end{tabular} \begin{tabular}{|l|c|} \hline Revenue & 12/31/2018 \\ \hline Total Revenue & 51,728,000 \\ \hline Cost of Revenue & 23,502,000 \\ \hline Gross Profit & 28,226,000 \\ \hline & \\ \hline Operating Expenses & \\ \hline Selling General and & 19,184,000 \\ \hline Administrative & 9,042,000 \\ \hline Operating Income or Loss & \\ \hline Income from Continuing & \\ \hline Operations & 1,148,000 \\ \hline Other Income/Expenses Net & 1,220,000 \\ \hline Interest Expense & 6,674,000 \\ \hline Income Before Tax & 2,696,000 \\ \hline & 3,978,000 \\ \hline Income Tax Expense & \\ \hline Net Income & \\ \hline \end{tabular} \begin{tabular}{|l|c|r|r|r|r|} \hline & \multicolumn{1}{|c|}{ Year 0 } & \multicolumn{1}{|c|}{ Year 1 } & \multicolumn{1}{|c|}{ Year 2 } & \multicolumn{1}{|c|}{ Year 3 } & \multicolumn{1}{|c|}{ Year 4 } \\ \hline Project A & 100,000 & 50,000 & 30,000 & 30,000 & 20,000 \\ \hline Project B & 250,000 & 100,000 & 100,000 & 50,000 & 50,000 \\ \hline Project C & 500,000 & 400,000 & 50,000 & 50,000 & 50,000 \\ \hline \end{tabular}
