URGENT VERY URGENT, Please help me with this can help with upvotes!!

An expansion will cost 150 million for the company, which requires rigorous strategic assessment, including financial viability. Now, she has approached you to evaluate this possible restructuring decision, whether it is a financially viable strategy or not. She also has suggested that this expansion project will run for the next five years, and after that, the company will enter into a new strategic cycle.

You have collected the following information from her to do the financial analysis for meaningful decisions. The expansion is expected to increase the sales of eXi Drive by the following units. 8,000 units in 2022 8,000 units in 2023 10,000 units in 2024 11,000 units in 2025 12,000 units in 2026 In 2021 the market price of this brand was 45,000, but the company wants to reduce it by 5,000 in 2022 and then will increase/decrease with the pace of the economy and purchasing power of the consumers. KPMG has projected that the Bank of Englands bank rate will remain 0.50 percent for the next couple of years, which will allow the post-Brexit-and-Covid expansion of the economy. In line with this economic assessment, your company has decided not to increase the price for the next three years (i.e., till 2024), but from the fourth year, a contingency plan is in place to increase the unit price by 2,000. The production cost is 20,000 per unit, which will increase in the line of inflation and other materials costs over the projects life at a rate of 10% each year starting from year two. The production involves fixed overhead expenditure of 20 million in 2022 and 2023, 15 million in 2024 and 10 million in 2025 and 2026. The project requires a working capital investment of 850,000 at the beginning, 50 percent of which the company will recover at the end of project life. The cost of promotion and R&D will be 5 million, respectively, over the five years. Assume that there is no other cost involved in this investment. The company is currently following the straight-line depreciation method, and historically 10% of the cost price of such investment is recovered in the final year. Financing choices: (the Board of Directors has agreed) The Board of Directors disapproved reinvesting the 100 million free cash flow from closing the existing five brands. Instead, they want to keep this fund reserved for future uncertainty. For this expansion project recommended by Ms Madison, the Board has recommended raising capital from alternatives financing from external sources. The company has three choices for financing this expansion: issuing new equity, issuing a bond, or issuing preference shares.

The equity of XYZ plc is currently trading in London Stock Exchange (LSE) with a face value of 10. The market price of each share is as follows:

Date Closing Price 04.11.20- 34.50 03.12.20- 36.20 06.01.21 -33.55 03.02.21- 35.10 To date - 34.80

In the last fiscal year, the company had declared a 1.2 per share dividend (DPS). The companys investment banker KPMG always charges an issuing (i.e. flotation) cost of 20% on the face value to issue new common stock in the market. Historically, the companys earnings per share are as follows:

Year EPS (Earning Per Share 2017 -22p 2018- 26p 2019- 17p 2020- 22p 2021- 25p

The company has also assessed the possibility of issuing a bond in the market. Currently, bonds of similar companies are selling at 110, slightly over the face value (i.e. 100) with a coupon rate of 10% and maturity of 5 years. The companys third financing option is to issue preferred stock in the LSE. The industry average preferred dividend and the current market price of preference shares of similar companies are 10 and 108, respectively. You have also collected additional data on the UK financial market and the company. Currently, the yield of the 3-month UK Gilt is 3.0%, and the FTSE 100 index has an average yearly return of 10% and the average corporate tax rate in the UK is 30%. In addition, the beta of XYZ plc is 1.5, which is slightly higher than the market beta of 1.

The company wants to maintain its existing capital structure policy of 50% debt, 10% preferred equity and 40% common equity for this new investment. Ms. Madison has requested you to make a report based on the following queries so that she can present it at the next board meeting. 1. What will be the cost for each source of financing? Consider both DDM (i.e. Dividend Discount Model) and CAPM (i.e. Capital Asset Pricing Model) method for common equity. 2. Determine the optimum cost of capital using the Weighted Average Cost of Capital (WACC) approach for target capital structure. (Hints: Ms. Madison would prefer to use CAPM over DDM). 3. Evaluate the total value addition (i.e. total NPV) and breakeven rate (i.e. IRR) of this possible restructuring decision. (Hints: Use the WACC as your discount rate to evaluate the investment projects)

[Following profit statement is just for your reference to calculate the net cash benefit given by your investment manager Ms Madison] Income Statement 2017 2018 2019 2020 2021 Am fm fm 2,703 Sales Cost of Sales Gross Profit (Loss) 1,622 (908 714 1,800 (1,056 744 2,730 (1,855) 875 2,654 (1,897 757 (1,754) 949 120 165 154 146 156 1 0 0 17 31 Overheads Fixed Overheads Stock Upkeep Cost Promotion Research and Development Market Research Depreciation 50 60 149 149 409 0 194 20 27 16 15 15 15 15 68 15 78 (427) 65 80 (506) 72 (433) (253) (682) Operating Profit Loss) 461 238 448 323 267 0 8 11 0 0 Investment Disposal Income Interest on Current Account Interest on Loans 0 7 8 8 10 (12 (34) (34) (45) (30) (33) (14) (11) (3) Pre-Tax Profit (Loss) 427 208 434 320 265 (27) (85) 342 (126) 308 (137) 183 (78) 187 Post Tax Profit (Loss) 181 Cost of Dividends (20) (40) (36) (40) (28) Year Retained Profit (Loss) 322 141 272 143 159 [Following profit statement is just for your reference to calculate the net cash benefit given by your investment manager Ms Madison] Income Statement 2017 2018 2019 2020 2021 Am fm fm 2,703 Sales Cost of Sales Gross Profit (Loss) 1,622 (908 714 1,800 (1,056 744 2,730 (1,855) 875 2,654 (1,897 757 (1,754) 949 120 165 154 146 156 1 0 0 17 31 Overheads Fixed Overheads Stock Upkeep Cost Promotion Research and Development Market Research Depreciation 50 60 149 149 409 0 194 20 27 16 15 15 15 15 68 15 78 (427) 65 80 (506) 72 (433) (253) (682) Operating Profit Loss) 461 238 448 323 267 0 8 11 0 0 Investment Disposal Income Interest on Current Account Interest on Loans 0 7 8 8 10 (12 (34) (34) (45) (30) (33) (14) (11) (3) Pre-Tax Profit (Loss) 427 208 434 320 265 (27) (85) 342 (126) 308 (137) 183 (78) 187 Post Tax Profit (Loss) 181 Cost of Dividends (20) (40) (36) (40) (28) Year Retained Profit (Loss) 322 141 272 143 159