You have been asked to calculate the value of the company. You asked two senior analysts about their prediction for future company growth. Angela predicted that the company will grow at 3% per year while Donald has predicted that the company will grow at 10% per year for the next two years and then will grow at 3% per year after that. The company paid a dividend today of RMB1. Use the cost of equity you calculated in a). d) What will be the value of the company if Angela is right? Click here to enter text. (1 Mark) e) What will be the value of the company if Donald is right? Click here to enter text. (2 Marks) p) You have decided that you trust Angela's opinion more. If the company is currently trading at RMB17 per share, should I buy or sell the stock based on the price you calculated in d). Click here to enter text. (1 Mark) g) What would happen to the WACC and the price if the company changed the capital structure so that the company was 50% debt and 50% equity? Justify your answer.- Click here to enter text. (2 Marks) You have been asked to calculate the appropriate cost of capital for a company with the following information: Company has issued 1 million shares which are currently trading for RMB55- Company has issued 82,500 bonds that have a RMB1,000 face value. The bonds are currently trading at par and the company has no other debt. Company paid RMB 5,362,500 in interest this year. The company pays tax at 25%. The risk free rate is currently 2.4% and the return on the market is 10.4% The appropriate beta for the company is 0.85 a) Calculate the cost of equity Click here to enter text.- (1 Mark) b) Calculate the cost of debt- Click here to enter text. (1 Mark) c) Calculate the weighted average cost of capital Click here to enter text.- (2 Marks) You have been asked to calculate the value of the company. You asked two senior analysts about their prediction for future company growth. Angela predicted that the company will grow at 3% per year while Donald has predicted that the company will grow at 10% per year for the next two years and then will grow at 3% per year after that. The company paid a dividend today of RMB1. Use the cost of equity you calculated in a). d) What will be the value of the company if Angela is right? Click here to enter text. (1 Mark) e) What will be the value of the company if Donald is right? Click here to enter text. (2 Marks) 1) You have decided that you trust Angela s opinion more. If the company is currently trading at RMB17 per share, should I buy or sell the stock based on the price you calculated in d). Click here to enter text- (1 Mark) g) What would happen to the WACC and the price if the company changed the capital structure so that the company was 50% debt and 50% equity? Justify your answer. e
