000A962ONMay lure%202017%20MC0%20Removed. pdf SECTION C3D marks Answer ONE question Question 13 (answer all parts) GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement 11,416.55 p.a. over the next 6 years. The corporate tax rate is 35%. The new maintain a constant debt-equity ratio. GlaxoSmithKline's cost of debt is 5.85% and its of one of its existing machines with a new model. The existing machine can be sold now for 8,000. The new machine costs 50,000 and will generate free cash flows of machine has average risk. GlaxoSmithKline's debt-equity ratio is 0.5 and it plans to cost of equity is 13.10%. a) Compute GlaxoSmithKline's weighted average cost of capital. (5 marks) b) What is the NPV of the new machine and should GlaxoSmithKline replace the old (10 marks) machine with the new one? c) The average debt-to-value ratio in the pharmaceutical industry is 20% what would GlaxoSmithKline's cost of equity be if it took on the average amount of debt of its industry at a cost of debt of 5%? Do this calculation assuming the company (10 marks) does not pay taxes d) Given the capital structure change in question c) according to Modigliani and Millers theory one could argue that GlaxoSmithKline's WACC should decline because its cost of equity capital has declined. Discuss. (10 marks) (TOTAL 35 marks) F12PrtSerInsert | F11 F10 000A962ONMay lure%202017%20MC0%20Removed. pdf SECTION C3D marks Answer ONE question Question 13 (answer all parts) GlaxoSmithKline plc is a pharmaceutical company. It is considering the replacement 11,416.55 p.a. over the next 6 years. The corporate tax rate is 35%. The new maintain a constant debt-equity ratio. GlaxoSmithKline's cost of debt is 5.85% and its of one of its existing machines with a new model. The existing machine can be sold now for 8,000. The new machine costs 50,000 and will generate free cash flows of machine has average risk. GlaxoSmithKline's debt-equity ratio is 0.5 and it plans to cost of equity is 13.10%. a) Compute GlaxoSmithKline's weighted average cost of capital. (5 marks) b) What is the NPV of the new machine and should GlaxoSmithKline replace the old (10 marks) machine with the new one? c) The average debt-to-value ratio in the pharmaceutical industry is 20% what would GlaxoSmithKline's cost of equity be if it took on the average amount of debt of its industry at a cost of debt of 5%? Do this calculation assuming the company (10 marks) does not pay taxes d) Given the capital structure change in question c) according to Modigliani and Millers theory one could argue that GlaxoSmithKline's WACC should decline because its cost of equity capital has declined. Discuss. (10 marks) (TOTAL 35 marks) F12PrtSerInsert | F11 F10