Ch 09 financial management notes

1. Cae 9.2: Solidaire Infrastructure Company
(Rs in million)
Cement Fertiliser Power Solidaire
Sales 700 450 350 1,500
PAT 29 17 24 70
Assets 550 230 420 1,200
Current assets 210 100 20 330
Equity (Market value) 1,000
Debt 1,800
(Rs in million)
Kisan Camel
Fertilisers Cement
Sales 550 850
PAT 23 41
Assets 320 700
Current assets 140 300
Market Value of Equity 150 320
Debt 220 650
Equity beta 1.2 1.36

2. Risk-free rate 5.6%
Risk premium 9.8%
Average market return 17.6%
Average risk-free rate 7.8%
Company
Company equity beta 1.500
Current market value debt ratio 64.3%
Unlevered beta 0.536
Target debt ratio 71.4%
Levered beta 1.875
Cost of equity 24.0%
After cost of debt 8.0%
WACC 12.6%
Fertiliser Division
Leveraged beta of comparable firm 1.200
Debt ratio of comparable firm 59.5%
Unlevered beta for comparable firm 0.486
Fertiliser Division's target debt ratio 66.7%
Fertiliser division's levered beta 1.459
Cost of equity 19.9%
After-tax cost of debt 8.0%
WACC 12.0%
Cement Division'
Leveraged beta of comparable firm 1.360
Debt ratio of comparable firm 67.0%
Unlevered beta for comparable firm 0.449
Cement Division's target debt ratio 71.4%
Cement division's levered beta 1.570
Cost of equity 21.0%
After-tax cost of debt 8.0%
WACC 11.7%
Power Division
Power Division's unlevered beta 0.677
Target debt ratio 80.0%
Levered beta 3.383
Cost of equity 45.2%
After-tax cost of debt 8.0%
WACC 15.4%