Calculation Questions

Please show your work in details!

1- ) (30 points) The following information is given for a company.

	2002E	2003E	2004E	2005E	Terminal Value
EBIAT	50	50	60	60
CAPX	10	10	10	10
Depreciation	5	5	5	5
Investment in Working Capital	5	5	5	5
interest	5	5	5	5
goodwill	1	1	1	1

Risk free rate: 4%

Market risk premium: 7%

Expected growth rate of cash flows after 4.year = 5%

Beta Asset = 1.6

Beta Debt=1

Cost of Debt=8%

The company is planning to change the capital structure by the end of its 2^rd year. For the first two years debt to equity ratio is 2/3 and 1/4 afterwards. Assume the cost of debt is decreased to 6% with the change in the debt of the company. Calculate the value of the company using WACC approach. Assume corporate tax rate is 40%.