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You are a conservative investor who is considering investing in XYZ , a small film company. You like the intrinsic valuation approach and want to

You are a conservative investor who is considering investing in XYZ, a small film company. You like the intrinsic valuation approach and want to calculate XYZ weighted average cost of capital and then perform a discounted cash flow analysis. You note that the equity market risk premium is 5.8%. The risk free rate is 2.5% and the tax rate is 35%. You feel that XYZ is riskier than the CAPM would indicate due to its small size and believe it has a size risk premium of 1.2%. You have the following information about XYZ:
Bonds: Gababa Films has two bonds as outlined below:
o Bond One: six year maturity, $1,000 face value semi-annual coupon bond with a coupon of 1.73% and a yield to maturity of 4.23%.XYZ has 25,637 of these bonds outstanding.
o Bond Two: is a coupon bond that pays annually and has nine years to maturity. The coupon rate is 2.75%, its yield to maturity is 4.78% and its face value of $1,000. XYZ has 7,864 of these bonds outstanding.
Equity: XYZ has 4,125,876 common shares outstanding and its stock price is $3.56. XYZ beta is 3.1 and its Shareholders Equity from the balance sheet is $9.3mm.
Unlevered Free Cash Flow as per the following table:
a) Calculate XYZ weighted average cost of capital. Please show all your work and round to at least 2 decimal points.
b) Perform a discounted cash flow analysis to determine what the intrinsic value of XYZ is on a per share basis. Use the above 5 years of unlevered free cash flow projections and the perpetuity growth rate method to calculate the companys terminal value. You believe XYZ will grow into perpetuity at a 1.25% growth rate. You note that XYZ has cash of $1,465,264. Please show all your work and round to at least 2 decimal points).

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