Monash Logistics Trust has bonds trading at a 6% premium to par value with a coupon...

 

  

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Monash Logistics Trust has bonds trading at a 6% premium to par value with a coupon rate of 6.5% pa (paid annually) and have 10 years till maturity. There are 500 bonds and each has a book value of $10,000. The trust equity has a book value of $1 million that is trading at a 30% premium. The trust tax rate is 15% and it has a beta of 1,23. The ASX200 is yielding 13% and long-term government debt is returning 2.5%. The Trust is considering a purchase of warehouse robots that cost $120,000 each and requires extra net working capital equal to 2% of cost. Every robot purchased is expected to increase annual revenue by 0.25%. Each robot has an annual operating expense of 30% of the extra revenue generated and is depreciated by $20000 each year for an effective operating life of 6 years. Every 2 years, each robot requires servicing that costs 3% of the original cost. Each robot is expected to have a salvage value of 10% of original cost at the end of their 6 year life. Current warehouse revenue is $15,000,000. a) Using the information above, assuming that the Trust buys 50 robots, calculate the NPV. IRR, PI. Payback and Discounted Payback Period of the project. The project has a payback period target of 3 years. Do you recommend accepting the project? Show your full working and provide a written recommendation with justification using the capital budgeting metric decision rules. Show $ and % rounding to 2 decimal places. (hint: do not "hard-code" the number of robots into a cell formula; rather place number of robots into a separate cell and refer to this cell reference for formula calculations. This is to assist with the follow-on part b) b) Moodies has just upgraded the credit rating of the trust one grade up that causes the Trust bond price to increase by 5%. What is the impact of this new information on Kd, WACC, NPV and IRR? Does your recommendation change? Then, calculate how many robots (integer) must the trust purchase to reach a NPV target of +$700,000. Show your full working, separate to the working in part a. Provide a written answer about the impact of the credit rating change and include whether more or less robots are required to achieve the NPV target after the credit rating change. Show $ and % rounding to 2 decimal places. (10 marks) Monash Logistics Trust has bonds trading at a 6% premium to par value with a coupon rate of 6.5% pa (paid annually) and have 10 years till maturity. There are 500 bonds and each has a book value of $10,000. The trust equity has a book value of $1 million that is trading at a 30% premium. The trust tax rate is 15% and it has a beta of 1,23. The ASX200 is yielding 13% and long-term government debt is returning 2.5%. The Trust is considering a purchase of warehouse robots that cost $120,000 each and requires extra net working capital equal to 2% of cost. Every robot purchased is expected to increase annual revenue by 0.25%. Each robot has an annual operating expense of 30% of the extra revenue generated and is depreciated by $20000 each year for an effective operating life of 6 years. Every 2 years, each robot requires servicing that costs 3% of the original cost. Each robot is expected to have a salvage value of 10% of original cost at the end of their 6 year life. Current warehouse revenue is $15,000,000. a) Using the information above, assuming that the Trust buys 50 robots, calculate the NPV. IRR, PI. Payback and Discounted Payback Period of the project. The project has a payback period target of 3 years. Do you recommend accepting the project? Show your full working and provide a written recommendation with justification using the capital budgeting metric decision rules. Show $ and % rounding to 2 decimal places. (hint: do not "hard-code" the number of robots into a cell formula; rather place number of robots into a separate cell and refer to this cell reference for formula calculations. This is to assist with the follow-on part b) b) Moodies has just upgraded the credit rating of the trust one grade up that causes the Trust bond price to increase by 5%. What is the impact of this new information on Kd, WACC, NPV and IRR? Does your recommendation change? Then, calculate how many robots (integer) must the trust purchase to reach a NPV target of +$700,000. Show your full working, separate to the working in part a. Provide a written answer about the impact of the credit rating change and include whether more or less robots are required to achieve the NPV target after the credit rating change. Show $ and % rounding to 2 decimal places. (10 marks)

Answer rating: 100% (QA)

First we need to calculate some necessary elements to perform the Net Present Value NPV Internal Rate of Return IRR Payback Period and Discounted Payback Period calculations From the provided informat... View the full answer