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Workings - June 29th

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mosokit5
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13 views

Workings - June 29th

Uploaded by

mosokit5
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Year 10

Sales 350,000
Subtract:
COGS 130,000
Admin expenses 25,000
Depreciation expense 100,000
Pretax income 95,000
Tax expense @ 25% 23,750
Net income 71,250

Cash flow in year 10 = Net income + annual depreciation expense = 71,250+100,000

Cost of preferred stock = annual dividend / Current share price = 4.5/72

After tax cost of debt = Pretax cost of debt * (1-tax rate) = 6% * (1-25%)

CAPM: Return = Risk free rate + Beta *(Risk premium) = 4.5%+1.05*8%

ks = D1/(R-g)
R = D1/ks + g = 2.80/56 + 7.7% 12.70%

Market value capital structure = MV of stock + MV of debt


MV of common stock = MV per share * outstanding shares = 56*310,000
MV of preferred stock = MV per share * outstanding shares = 72*15,000
MV of debt = 131.423%*par value = 131.423%*8,000*1,000
Total market value of capital

Annual cashflow 171,250


Initial investment 1,030,000

Payback period = Initial investment / Annual cash flow = 1,030,000 / 171,250


Profitability index = PV of cash inflows / Initial investment
1.2 = PV of inflows / 1,030,000
PV of inflows = 1,030,000 * 1.2 1,236,000

(1-(1+9%)^-10)/9% 6.417658

Pv of cash flows - Initial investment = 0


NPV = PV of cash flows - Initial investment
PV of cash flows = PVAF * annual cash flow = 6.417658

6.417658 * X - 1,030,000 = 0
6.417658X = 1,030,000
X 160,494.69
171,250

6.25%

4.50%

12.90%

Weights of MV After tax cost


17,360,000 59.957505% 12.70% 7.61%
1,080,000 3.730075% 6.25% 0.23%
10,513,840 36.312420% 4.50% 1.63%
28,953,840 9.48% WACC

Year Cash flow PV


0 (1,030,000) (1,030,000)
1 171,250 157,110
6.01 2 171,250 144,138
3 171,250 132,236
4 171,250 121,318
5 171,250 111,301
6 171,250 102,111
7 171,250 93,680
8 171,250 85,945
9 171,250 78,848
10 171,250 72,338
NPV 69,023.88

NPV 69,023.88 1,099,024


IRR 10.50%

PV of inflows 1,099,024
1.07

investment = 0
- Initial investment
F * annual cash flow = 6.417658 * X

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