GET YOUR WORK DONE BY       www.TopGradePapers.com                    rs                 pe      Pa Corporate Finance     ...
GET YOUR WORK DONE BY                                       www.TopGradePapers.com                                       Q...
GET YOUR WORK DONE BY                                         www.TopGradePapers.com                                      ...
GET YOUR WORK DONE BY                                      www.TopGradePapers.com                                      Que...
GET YOUR WORK DONE BY                                    www.TopGradePapers.com                                    Questio...
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Corporate finance academic assignment - www.topgradepapers.com

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Corporate finance academic assignment - www.topgradepapers.com

  1. 1. GET YOUR WORK DONE BY www.TopGradePapers.com rs pe Pa Corporate Finance de rapGTo GET YOUR WORK DONE BY www.TopGradePapers.com
  2. 2. GET YOUR WORK DONE BY www.TopGradePapers.com Question No: 1 APV = NPV + NVP OF FINANCING rs At year 1: NPV= -50+40/ (1+.12)1 pe = -14.2857 NPV of financing = 50-(20+16)/ (1.08)1 =30 Pa APV effect at year 1= -14.2857 + 30 = 15.7143 At year 2: de NPV= -50+40/ (1+.12)1+20/ (1+.12)2 =1.658 NPV of financing =50 - 21.6/ (1+.08)1-15.96/ (1+.08)2 ra =16.3169 APV= 1.658 + 16.3169pG =17.9749 At year 3: NPV= -50+40/ (1+.12)1+20/ (1+.12)2-25/ (1+.12)3To =19.4527 NPV of financing= 50-21.6/ (1+.08)1-15.96/ (1+.08)2-15.48/ (1+.08)3 =4.0283 APV=19.4527 + 4.0283 =23.4810 GET YOUR WORK DONE BY www.TopGradePapers.com
  3. 3. GET YOUR WORK DONE BY www.TopGradePapers.com Question No: 2 At year 0 rs Cost of equity =12% Cost of debt= 8% Tax rate=40% I- Equity=0 debt=100% pe = (0*.12) + (1*.08*.6) =.048 =4.8% Pa At year 1 II- Equity= 40% debt=60% = (20/50) * .12 + (30/50)*.08*.6 de =.048 + .0288 =.0768 =7.68% At year 2 ra III- Equity=70% debt =30% = (35/50)*.12 + (15/50)*.08*.6pG =.084+.0144 =.0984 =9.84% At year 3 IV- Equity= 100% debt=0%To =1*.12 + 0*.08*.6 =.12 =12% The WACC is increasing over time due to the increase inequity and reduction in debt amount. GET YOUR WORK DONE BY www.TopGradePapers.com
  4. 4. GET YOUR WORK DONE BY www.TopGradePapers.com Question No: 3 NPV using WACC rs =-50+40/ (1+.0768)1+20/ (1+.0984)2+25/(1+.12)3 =-50+37.1471+16.5771+17.7949 pe NPV=21.5191 Question No: 4 Pa Assumption: finding cost of capital using Miller & Modigliani Rs=Ro+ (B/S) (Ro-Rb) (1-Tc) Where r0 = the required return on the equity of an unlevered firm rS = the required return on the equity of a levered firm de rB = the pre-tax cost of debt TC = the corporate tax rate B = the market value of the firm’s debt ra S = the market value of the firm’s equity Year 1pG =.12+1.5*.04*.6 =.1560=15.60% Year 2 =.12+.43*.04*.6To =.1303 =13.03% Year 3 =.12+0*.04*.6 =.12 =12% GET YOUR WORK DONE BY www.TopGradePapers.com
  5. 5. GET YOUR WORK DONE BY www.TopGradePapers.com Question No: 5 rs FTE method Year 3 =-50+40/ (1+.1560)1+20/ (1+.1303)2+25/ (1+.12)3 pe =24.6179 Pa The NPV using FTE method is more than the method used in WACC and initial NPV. de rapGTo GET YOUR WORK DONE BY www.TopGradePapers.com

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