There were 6 parts as follows: ONLY 4 GOT ANSWERED

A private company by the name of EM has the following capital structure: Equity Capital Debt Capital $1,000,000 Total Value $3,000,000 Cost of Debt Beta Value 6.5% 1.3 $2,000,000 (1.1). Using the above information calculate EM's percentage of equity and debt capital. [2 marks] (1.2). Using CAPM and the information in the table, calculate EM's cost of equity. The risk free rate and rate of return on market are 4.5% and 18% respectively. [5 Marks] (1.3). Calculate EM's weighted average cost of capital (WACC). EM pays 30% tax. [6 Marks] (1.4). EM's $2,000,000 loan (debt) is for 20 years. Using the above information calculate annual repayment on EM's loan. Use after tax cost of debt as interest rate. [6 Marks] (1.5). Calculate EM's present value (PV), net present value (NPV) and internal rate of return (IRR) using the net cash flow after loan repayment. Use WACC as the discount rate. Other information over the 10-year period are as follows: Before loan repayment cash flows for first 2-years are $200,000 per year, next 3-years are 300,000 per year, and next 4-years are $400,000 per year. In year 10 the EM is expected to be sold for $4 million and in same year the balance loan will be paid off. So year-10 net cash flow is sale price minus the balance loan payment. Loan repayment starts in year-1 and you may round off yearly loan repayment figure for simplicity. For year zero the upfront cost is $1,000,000 which is owner's equity. [15 Marks] (1.6). Will you invest in the EM? If yes why; if not why? Also calculate return on equity capital to better explain your answer.

FROM 1.1 TO 1.4 HAS BEEN ANSWERED SEPARATELY HENCE NEED ANSWERS AND WORKING FOR 1.5 AND 1.6

(1.5). Calculate EM's present value (PV), net present value (NPV) and internal rate of return (IRR) using the net cash flow after loan repayment. Use WACC as the discount rate. Other information over the 10-year period are as follows:

Before loan repayment cash flows for first 2-years are $200,000 per year, next 3-years are 300,000 per year, and next 4-years are $400,000 per year. In year 10 the EM is expected to be sold for $4 million and in same year the balance loan will be paid off. So year-10 net cash flow is sale price minus the balance loan payment. Loan repayment starts in year-1 and you may round off yearly loan repayment figure for simplicity. For year zero the upfront cost is $1,000,000 which is owner's equity.

(1.6). Will you invest in the EM? If yes why; if not why? Also calculate return on equity capital to better explain your answer.

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