Class Notes (837,435)
Canada (510,273)
Rotman Commerce (1,103)
RSM333H1 (14)
Lecture

MGFC10mt_Sum2013_Solution.pdf

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Department
Rotman Commerce
Course
RSM333H1
Professor
Syed Ahmed
Semester
Summer

Description
ANSWER 1: a. Common Equity Market Value = S = 10,000,000 x $30 = $300,000,000 2 rsr f rsrm f= 2% + 1.4(6%) =10.4% Debt Market Value = B = 100,000 x $1000 = $100,000,000 4 rB7% Preferred Stock 2 Market Value = P = 2,000,000 x $50 = $100,000,000 rp 3/50 = 0.06 = 6% V = S + B + P = $300,000,000 + 100,000,000 + 100,000,000 = $500,000,000 1 S 3 B 1 P 1   0.6   0.20   0.20 V 5 V 5 V 5 1 r  r S  r (1T ) B  r P WACC SV B c V P V 2 = 0.104(0.60) + 0.07(1-0.4)(0.20) + 0.06(0.20) = 0.0828 b. 13  1   1 t  1 rwacc  NPV  Land Plant  NWC  PriceVariableCost Voume Fixe dCost 1 T  c r   wacc     1  1 t   Plant    1 rwacc  SalvageValueofLand TaxOnCapitalGain  Recove ryOfNWC t c  rwacc   r t 1 r t   wacc wacc   1 1 25   .0828   NPV  $10,000,00030,000,00010,000,000 20001000 3,000 20,000,000 1 04    0.0828    1 1  $30,000,000  1.0828 5 30,000,000 (30,000,000  10,000,000)0.5(0.4) 10,000,000   4    25  25 25  0.0828  1.0828  .0828      = -$50,000,000 + 62,545,982 + 5,003,679 + 3,558,502 + 1,368,654 = $22,476,817 ANSWER 2: MV of Debt = B = $100,000,000 2 MV of Equity = S =D 01 g) #ofShares  3(10.04) 10,000,000 $390,000,000 s  g 0.120.04 2 B/S = 10/39 B/V = 10/49 S/V = 39/49 1 Project A rB 0.08 8% 1 r r   (r r ) 0.03 1.2(0.06) 0.102 10.2% s f x m f 2 B S 10 39 r r (1T ) r  0.08(1 0.40)  0.102  0.0.09098 WACC B c V s V 49 49 2  1  1 (1.09098)30 NPV  $10,000,000 2,000,000(10.40)   $2,222,032 ACCEPT 3  0.09098      Project B rB 0.08 8% r  0.031.5(0.06) 0.1212% s 2 10 39 rWACC  0.08(10.40) 0.12  0.10530610.5306% 49 49 2 NPV  $20,000,000 5,000,000(1 0.40)  $20,000,000 23,941,391 $3,941,3 91 0.105306 0.02 ACCEPT
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