What is Star Rivers weighted-average cost of capital (WACC)? What methods did you use to estimate WACC? What are the key assumptions that especially influence WACC?

-40 Part Four Capital Budgeting and Resource Allocation EXHIBIT 1 | Historical Income Statements for Fiscal Year Ended June 30 (SGD 000) 1999 2000 1998 2001 71,924 80,115 92,613 106,042 Sales Operating expenses: Production costs and expenses Admin. and selling expenses Depreciation Total operating expenses Operating profit Interest expense Earnings before taxes Income taxes Net earnings Dividends to all common shares Retentions of earnings 33,703 16,733 8,076 58,512 13,412 5,464 7,949 2,221 5,728 2,000 3,728 38,393 17,787 9,028 65,208 14,908 6,010 8,897 2,322 6,576 2,000 4,576 46,492 21,301 10,392 78,185 14,429 7,938 6,491 1,601 4,889 53,445 24,177 11,360 88,983 17,059 7,818 9,241 2,093 7,148 2,000 5,148 2,000 2,889 *The expected corporate tax rate was 24.5%. EXHIBIT 2 Historical Balance Sheets for Fiscal Year Ended June 30 (SGD 000) 1998 1999 2000 2001 Assets: Cash 4,816 5,670 6,090 5,795 Accounts receivable 22,148 25,364 28,078 35,486 Inventories 23,301 27,662 53,828 63,778 Total current assets 50,265 58,697 87,996 105,059 Gross property, plant & equipment 64,611 80,153 97,899 115,153 Accumulated depreciation (4,559) (13,587) (23,979) (35,339) Net property, plant & equipment 60,052 66,566 73,920 79,814 Total assets 110,317 125,262 161,916 184,873 Liabilities and Stockholders' Equity: Short-term borrowings (bank) 29,002 37,160 73,089 84,981 Accounts payable 12,315 12,806 11,890 13,370 Other accrued liabilities 24,608 26,330 25,081 21,318 Total current liabilities 65,926 76,296 110,060 119,669 Long-term debt? 10,000 10,000 10,000 18,200 Shareholders' equity 34,391 38,967 41,856 47,004 Total liabilities and stockholders' equity 110,317 125,263 161,916 184,873 Short-term debt was borrowed from City Bank at an interest rate equal to Singaporean prime lending rates + 1.5%. Current prime lending rates were 5.2%. The benchmark 10-year Singapore treasury bond currently yielded 3.6%. Two components made up the company's long term debt. One was a SGD10 million loan that had been issued privately in 1996 to New Era Partners and to Star River Electronics Ltd., U.K. This debt was subordinate to any bank debt outstanding. The second component was a SGD8.2 million from a 5-year bond issued on a private placement basis last July 1, 2000, at a price of SGD97 and a coupon of 5.75% paid semiannually. EXHIBIT 3 | Ratio Analyses of Historical Financial Statements 1998 1999 2000 2001 18.6% 27.9% 8.0% 16.7% 5.2% 18.6% 26.1% 8.2% 16.9% 5.2% 15.6% 24.7% 5.3% 11.7% 3.0% 16.1% 22.6% 6.7% 15.2% 3.9% Profitability Operating margin (%) Tax rate (%) Return on sales (%) Return on equity (%) Return on assets (%) Leverage Debt/equity ratio Debt/total capital (%) EBIT/interest (x) Asset Utilization Sales/assets Sales growth rate (%) Assets growth rate (%) Days in receivables Payables to COGS Inventories to COGS Liquidity Current ratio Quick ratio 1.13 0.53 2.45 1.21 0.55 2.48 1.99 0.67 1.82 2.20 0.69 2.18 65.2% 15.0% 8.0% 112.4 36.5% 69.1% 64.0% 11.4% 13.5% 115.6 33.4% 72.1% 57.2% 15.6% 29.3% 110.7 25.6% 115.8% 57.4% 14.5% 14.2% 122.1 25.0% 119.3% 0.76 0.41 0.77 0.41 0.80 0.31 0.88 0.34 -40 Part Four Capital Budgeting and Resource Allocation EXHIBIT 1 | Historical Income Statements for Fiscal Year Ended June 30 (SGD 000) 1999 2000 1998 2001 71,924 80,115 92,613 106,042 Sales Operating expenses: Production costs and expenses Admin. and selling expenses Depreciation Total operating expenses Operating profit Interest expense Earnings before taxes Income taxes Net earnings Dividends to all common shares Retentions of earnings 33,703 16,733 8,076 58,512 13,412 5,464 7,949 2,221 5,728 2,000 3,728 38,393 17,787 9,028 65,208 14,908 6,010 8,897 2,322 6,576 2,000 4,576 46,492 21,301 10,392 78,185 14,429 7,938 6,491 1,601 4,889 53,445 24,177 11,360 88,983 17,059 7,818 9,241 2,093 7,148 2,000 5,148 2,000 2,889 *The expected corporate tax rate was 24.5%. EXHIBIT 2 Historical Balance Sheets for Fiscal Year Ended June 30 (SGD 000) 1998 1999 2000 2001 Assets: Cash 4,816 5,670 6,090 5,795 Accounts receivable 22,148 25,364 28,078 35,486 Inventories 23,301 27,662 53,828 63,778 Total current assets 50,265 58,697 87,996 105,059 Gross property, plant & equipment 64,611 80,153 97,899 115,153 Accumulated depreciation (4,559) (13,587) (23,979) (35,339) Net property, plant & equipment 60,052 66,566 73,920 79,814 Total assets 110,317 125,262 161,916 184,873 Liabilities and Stockholders' Equity: Short-term borrowings (bank) 29,002 37,160 73,089 84,981 Accounts payable 12,315 12,806 11,890 13,370 Other accrued liabilities 24,608 26,330 25,081 21,318 Total current liabilities 65,926 76,296 110,060 119,669 Long-term debt? 10,000 10,000 10,000 18,200 Shareholders' equity 34,391 38,967 41,856 47,004 Total liabilities and stockholders' equity 110,317 125,263 161,916 184,873 Short-term debt was borrowed from City Bank at an interest rate equal to Singaporean prime lending rates + 1.5%. Current prime lending rates were 5.2%. The benchmark 10-year Singapore treasury bond currently yielded 3.6%. Two components made up the company's long term debt. One was a SGD10 million loan that had been issued privately in 1996 to New Era Partners and to Star River Electronics Ltd., U.K. This debt was subordinate to any bank debt outstanding. The second component was a SGD8.2 million from a 5-year bond issued on a private placement basis last July 1, 2000, at a price of SGD97 and a coupon of 5.75% paid semiannually. EXHIBIT 3 | Ratio Analyses of Historical Financial Statements 1998 1999 2000 2001 18.6% 27.9% 8.0% 16.7% 5.2% 18.6% 26.1% 8.2% 16.9% 5.2% 15.6% 24.7% 5.3% 11.7% 3.0% 16.1% 22.6% 6.7% 15.2% 3.9% Profitability Operating margin (%) Tax rate (%) Return on sales (%) Return on equity (%) Return on assets (%) Leverage Debt/equity ratio Debt/total capital (%) EBIT/interest (x) Asset Utilization Sales/assets Sales growth rate (%) Assets growth rate (%) Days in receivables Payables to COGS Inventories to COGS Liquidity Current ratio Quick ratio 1.13 0.53 2.45 1.21 0.55 2.48 1.99 0.67 1.82 2.20 0.69 2.18 65.2% 15.0% 8.0% 112.4 36.5% 69.1% 64.0% 11.4% 13.5% 115.6 33.4% 72.1% 57.2% 15.6% 29.3% 110.7 25.6% 115.8% 57.4% 14.5% 14.2% 122.1 25.0% 119.3% 0.76 0.41 0.77 0.41 0.80 0.31 0.88 0.34