Sungsam Corporation, a US-based conglomerate, is considering expanding its operations in India. As the group's chief...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Sungsam Corporation, a US-based conglomerate, is considering expanding its operations in India. As the group's chief financial officer, you are asked to estimate the firm's weighted average cost of capital. Sungsam has I million shares of common stock outstanding with a market price of $12 per share. The firm's outstanding annual coupon bonds have ten years to maturity, a face value of S5 million ($1000 per bond), a coupon rate of 10% and are priced at S1,000. The risk-free rate is 7% and analysts' expected return for the market is 14%. Sungsam's stock has a beta of 1.2 and the firm is in the 34% tax bracket. What is the firm's WACC? (16 marks) b) When the project's risk is not the same as the average risk of the company's existing projects, how should the company cost of capital be used in the NPV analysis for the project? (4 marks) c) Sungsam is a conglomerate consisting of an electronics division and a shipping division. The performance of the electronics division fluctuates a great deal with the state of the economy while the performance of the shipping division tends to be more steady. If Sungsam uses its WACC to evaluate all investment projects, how would this influence the acceptance or rejection of projects in the two divisions? (5 marks) Sungsam Corporation, a US-based conglomerate, is considering expanding its operations in India. As the group's chief financial officer, you are asked to estimate the firm's weighted average cost of capital. Sungsam has I million shares of common stock outstanding with a market price of $12 per share. The firm's outstanding annual coupon bonds have ten years to maturity, a face value of S5 million ($1000 per bond), a coupon rate of 10% and are priced at S1,000. The risk-free rate is 7% and analysts' expected return for the market is 14%. Sungsam's stock has a beta of 1.2 and the firm is in the 34% tax bracket. What is the firm's WACC? (16 marks) b) When the project's risk is not the same as the average risk of the company's existing projects, how should the company cost of capital be used in the NPV analysis for the project? (4 marks) c) Sungsam is a conglomerate consisting of an electronics division and a shipping division. The performance of the electronics division fluctuates a great deal with the state of the economy while the performance of the shipping division tends to be more steady. If Sungsam uses its WACC to evaluate all investment projects, how would this influence the acceptance or rejection of projects in the two divisions? (5 marks)
Expert Answer:
Answer rating: 100% (QA)
a Market Value of Shares 1 million shares x 12 per share 12 Million or 12000000 Face Value Of Bonds 5 Million Face Value Per Bond 1000 therefore No Of ... View the full answer
Related Book For
Supply Chain Management Strategy Planning and Operation
ISBN: 978-0133800203
6th edition
Authors: Sunil Chopra, Peter Meindl
Posted Date:
Students also viewed these finance questions
-
A firm has 1 million shares of common stock outstanding with a book value of $5 per share. The firm also has total assets with a book value of $10 million. There is no preferred stock. What are the...
-
A firm has 1 million shares of common stock outstanding with a book value of $15 per share. The firm also has total assets with a book value of $20 million. There is no preferred stock. What are the...
-
A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 each. It has 2,000 bonds outstanding, each with a market value of $1,200 (120 percent of face). The bonds mature...
-
EX: let X ~ B (5, 0.4) X ~ B (7, 004) Xz ~ B ( 7 0.2) Find the dist. of Now Noint cik Date. 2 No. R X) q X + X 3 X + X
-
For each of the listed scale measurements (A, B, and C), answer the following questions: What type of data is being collected? What level of scale measurement is being used? What scaling...
-
Calculate the annual heat loss (in U.S. units) through the following wall assemblies using U-factors from Table 2.9 and the annual heating degree days over a typical heating season at the...
-
Suppose you started up your own landscaping business. A customer paid you $120 in advance to mow his or her lawn while he or she was on vacation. You performed landscaping services for a local...
-
The balance sheet of Kishwaukee Corporation as of December 31, 2014, is as follows. Note 1: Buildings are stated at cost, except for one building that was recorded at appraised value. The excess of...
-
As a TQM consultant for one of the companies what would be your advice / plane ? ( Discuss decline failure or success and give your advice )
-
Watershed is a media services company that provides online streaming movie and television content. As a result of the competitive market of streaming service providers, Watershed is interested in...
-
11: A flexible-budget variance is $600 favourable for unit-related costs. This indicates that actual costs were ________. a. $600 more than the master budget b. $600 less than for the planned level...
-
Statistical sampling may be applied to test controls when a client's control procedures: a. Depend primarily on segregation of duties. b. Are carefully reduced to writing and are included in client...
-
Assessing control risk too high is the risk that the sample: a. Does not support tolerable error for some or all of management's assertions. b. Contains proportionately more deviations from...
-
The use of statistical sampling in a financial statement audit does not eliminate the need for professional judgment. Required: Identify and explain four areas where judgment may be exercised by an...
-
Which of the following statements is true about nonstatistical sampling in tests of controls? a. Nonstatistical sampling plans provide a quantitative measure of sampling risk. b. The auditor's...
-
Which of the following statements is correct? a. The expected population deviation rate has little or no effect on sample size. b. As the population size doubles, the sample size also should double....
-
2. This problem refers to Figure 2. The inner, solid, infinitely long cylinder has a radius l (when viewed from the side). Suppose the solid cylinder has a uniform charge density p (this is charge...
-
What are the two methods used to translate financial statements and how does the functional currency play a role in determining which method is used?
-
Why do you think assembly in the consumer electronics industry is performed by third parties, whereas assembly in the auto industry is almost never outsourced?
-
Why has e-business been more successful in the computer hardware industry compared to the grocery industry? In the future, how valuable is e-business likely to be in the computer hardware industry?
-
What problems result if each stage of a supply chain views its demand as the orders placed by the downstream stage? How should firms within a supply chain communicate to facilitate coordination?
-
The following data come from the inventory records of (. Dodge Company: Based on these facts, the gross profit for Dodge Company is a. \(\$ 150,000\). b. \(\$ 220,000\) c. \(\$ 190,000\). d. some...
-
A sample of students is enrolled in a speed-reading class. Each takes a reading test before and again after the class. The two samples of scores are compared to determine how large an improvement in...
-
A sample of students is enrolled in an online statistics class, and another sample is enrolled in a traditional statistics class. At the end of the semester, the students are given a test. The scores...
Study smarter with the SolutionInn App