Debt/Equity of project= Tax Rate Levered equity Debt Issue IR= repayment of principal = Find NPV (debt financing) S 40% 28% 15% 10.00 m 10% $3.20m retiring at the end of year 3.
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- Part AUsing the following free cash flows and cost of equity = 7%, discount FCF year 1 back to time 0 (today). FCF year 1 = 500; FCF year 2 = 520; FCF year 3 = 560; FCF year 4 = 590; FCF year 5 = 610 a) 429.36 b) 467.29 c) 512.85 d) 422.10Part B Using the following expected interest payments, cost of debt = 5%, and tax-rate = 21%, discount the year 4 expected payment back to time 0 (today). Expected interest year 1 = 50; year 2 = 35; year 3 = 20; year 4 = 10; 5 = 0 a) 9.31 b) 10.11 c) 13.65 d) 6.50Financial Plan Components Cost Weights Weighted Cost A Debt 7.15% ? ? A Equity 5.15% 55% ? Weighted Average Cost of capital FIND B Debt 9.90% 60% ? B Equity 11.50% ? ? Weighted Average Cost of capital FIND C Debt 150000 7.15% ? ? C Equity 450000 5.15% ? ? Weighted Average Cost of capital FIND D Debt 300000 7.15% ? ? D Equity 300000 5.15% ? ? Weighted Average Cost of capital FIND Q1) Find Weighted Average capital for financial Plan C Q2) Find Weighted Average capital for financial Plan D Q3) Find Weighted Average capital for financial Plan A Q4) Find Weighted Average capital for financial Plan BBalance Sheet (dollars in thousands) and Duration (in years) Duration AmountT-bills. 0.5 $ 90T-notes 0.9 55T-bonds 4.393 176Loans 7 2,724Deposits. 1 2,092Fed. funds 0.01 238Equity 715What is the average duration of all the assets? What is the average duration of all the liabilities? What is the FI’s leverage-adjusted duration gap? What is the FI’s interest rate risk exposure? If the entire yield curve shifted upward 0.5 percent (i.e., ΔR/(1 + R) = 0.0050), what is the impact on the FI’s market value of equity? If the entire yield curve shifted downward 0.25 percent (i.e., ΔR/(1 + R) = −0.0025), what is the impact on the FI’s market value of equity?
- Whatiseachofthefollowinginvestmentsworthtodayassuminganannualdiscountrateof 7%? 1.(a) A3-yearmaturity“B”ratedcorporatebondwith4%annualinterestpaymentsanda principal value of £1,000RECAPITALIZATION Currently, Forever Flowers Inc. has a Capital structure consisting of 25% debt and 75% equity. Forever's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 6%and the market risk premium (rMrRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. a. What is Forevers current WACC? b. What is the current beta on Forevers common stock? c What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, buy? Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 10.5%. The proposed change will have no effect on the companys tax rate d What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the company's new WACC if it adopted the proposed change in capital structure? f. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure? Explain.Use Table 8 to answer the next two questions. Assume the committed capital is $100, the management fee is 2.00%, and the carried interest is 20.00%. Year 2015 2016 2017 2018 2019 $5.40 What is the carried interest in 2019? Called-down Paid in capital Mgmt Fees $26 $31 $21 O $11.20 $9.12 $9.85 $10 $12 Table 8 Operating NAV before Carried NAV after Results Distributions Interest Distributions Distributions -$14 $6 $11 $41 $46 $5 $10
- Use Table 8 to answer the next two questions. Assume the committed capital is $100, the management fee is 2.00%, and the carried interest is 20.00%. Year Called-down Paid in capital Mgmt Fees $26 $31 $21 $10 $12 2015 2016 2017 2018 2019 What is the carried interest in 2019? O $9.85 O $5.40 $9.12 4 O $11.20 Table 8 Operating NAV before Carried NAV after Results Distributions Interest Distributions Distributions -$14 $6 $11 $41 $46 $5 $10 हैPrepare a duration table under the following assumptions a. $100,000 balloon loan b. Annual payments c.5-year balloon d. 20-year amortization e. 7% stated rate f. 9% yieldPrepare a duration table under the following assumptions a. $100,000 balloon loan b. Annual payments c. 5-year balloon d. 20-year amortization e. 7% stated rate f. 9% yield
- Weighted Average Cost of Capital (WACC) using Table (Problem 11 in text) Financing Source Dollar Amount % Weight Interest Cost of Rate Capital After Tax Cost (D X (1-tax rate) Component to Sum (FXC) Short Term Note $ 200,000.00 15% Long Term Note $ 300,000.00 18% Equity Capital $ 500,000.00 25% Assumes 30% Tax Rate SOLVE FOR YELLOW HIGHLIGHTED BLOCKS WACCConsider the following timeline: Date Cash flow $100 OA. $627 OB. $482 OC. $600 OD. $964 2 $200 3 $300 If the current market rate of interest is 10%, then the present value (PV) of this timeline as of year 0 is closest to ICCESSTwo capital assets display the following: E(RA) = 12% σA = 1.5% E(RB) = 15% σB = 1.0% If asset A´s return is 5% below the Capital Market Line (CML), and asset B´s return is 1% below the CML, what is the equation of the CML? a) E(Ri) = 0.1203 − 0.02σi b) E(Ri) = 0.09 + 2σi c) E(Ri) = 0.1227 + 0.02σi d) E(Ri) = 0.15 − 2σi e) E(Ri) = 0.14 + 2σi