Question: Please help me i will give good rating QUESTION 3 You are employed by MAKAN (not real name), a major producer of frozen food stuffs
Please help me i will give good rating

QUESTION 3 You are employed by MAKAN (not real name), a major producer of frozen food stuffs with global market. You are one of the corporate staff as an assistant to the Finance Director. This is a position with the opportunity for rapid advancement, providing you make the right decisions. The Finance Director has asked you to estimate the weighted average cost of capital for the company. Following are balance sheets and some information about MAKAN. Assets Current assets RM38,000,000 Net plant, property, and equipment RM101,000,000 Total Assets RM139,000,000 Liabilities and Equity Accounts payable RM10,000,000 Accruals RM9,000,000 Current liabilities RM19,000,000 Long term debt (40,000 bonds, RM1,000 face value RM40,000,000 Total liabilities RM59,000,000 Common Stock 10,000,000 shares RM30,000,000 Retained Earnings RM50,000,000 Total shareholders equity RM80,000,000 Total liabilities and shareholders equity RM139,000,000 From the Bursa Malaysia, MAKAN stock is currently selling for RM7.50 per share and that MAKAN bonds are selling for RM889.50 per bond. These bonds have a 7.25 percent annual coupon rate, with semi-annual payments. The bonds mature in twenty years. The yield for the bond currently is at 8.4%. The beta for your company is approximately equal to 1.1. The yield on a 6-month Treasury bill is 3.5 percent and the yield on a 20-year Treasury bond is 5.5 percent. The expected return on the stock market is 11.5 percent, but the stock market has had an average annual return of 14.5 percent during the past five years. MAKAN is in the 40 percent tax bracket a. Using the CAPM approach, what is the best estimate of the cost of equity for MAKAN? b. What is best estimate for the after-tax cost of debt for MAKAN? c. What is the market value weights to be used when calculating the WACC? d. What is the best estimate of the WACC for MAKAN? e. What is the WACC estimate for MAKAN if the capital structure from the Balance Sheet is used
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
