As the financial manager of Wilmore Company Limited, with a passion to boost employment creation through intraregional tourism in Ghana, you have acquired a land at Ho to put up an exquisite amusement park that features a number of attractions including games, pools, gardens, rides etc. The project will cost a total of GH₵100,000. The following cash flows are expected from the project. The beta of the project is 1.5 and the market return is 15%. The risk-free rate of return is 8%. Year ₵ 0 (100,000) 1 20,000 2 25,000 3 32,000 4 35,000 i. Using the CAPM approach, what is the cost of equity on this project? ii. Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt? iii. What will be the weighted average cost of capital (WACC)?iv. Using the WACC computed in (c), what will be the NPV of the investment? vi. What will be your overall advice concerning viability of the project?
As the
Year
₵
0
(100,000)
1
20,000
2
25,000
3
32,000
4
35,000
i. Using the
ii. Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt? iii. What will be the weighted average cost of capital (WACC)?iv. Using the WACC computed in (c), what will be the
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