Académique Documents
Professionnel Documents
Culture Documents
pe
rs
To
pG
ra
de
Corporate Finance
Question No: 1
At year 1:
NPV= -50+40/ (1+.12)1
= -14.2857
NPV of financing = 50-(20+16)/ (1.08)1
Pa
=30
pe
rs
APV
de
At year 2:
ra
pG
At year 3:
To
APV=19.4527 + 4.0283
=23.4810
Question No: 2
pe
rs
At year 0
Cost of equity =12%
Cost of debt= 8%
Tax rate=40%
I- Equity=0 debt=100%
= (0*.12) + (1*.08*.6)
At year 1
II- Equity= 40% debt=60%
=.048 + .0288
=.0768 =7.68%
ra
At year 2
de
Pa
=.048 =4.8%
pG
= (35/50)*.12 + (15/50)*.08*.6
=.084+.0144
=.0984 =9.84%
At year 3
To
=1*.12 + 0*.08*.6
=.12 =12%
The WACC is increasing over time due to the increase inequity and reduction in debt amount.
Question No: 3
pe
rs
Pa
Question No: 4
rB
TC
de
Where r0
rS
ra
pG
Year 1
=.12+1.5*.04*.6
=.1560=15.60%
Year 2
To
=.12+.43*.04*.6
=.1303 =13.03%
Year 3
=.12+0*.04*.6
=.12 =12%
pe
rs
Question No: 5
FTE method
Year 3
Pa
=24.6179
To
pG
ra
de
The NPV using FTE method is more than the method used in WACC and initial NPV.