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
-
The Fed has announced a new, lower target for the federal funds rate;in other words the Fed wants to lower the federal funds rate from its present level. What does setting a lower target for the...
-
Often in the theory of chromatography we assume local equilibrium at all points in the column between the adsorbent particles and the adjacent fluid. Under these conditions, we can express \(c_{p...
-
What diameter orifice hole, \(d\), is needed if under ideal conditions the flowrate through the orifice meter of Fig. P3.129 is to be \(30 \mathrm{gal} / \mathrm{min}\) of seawater with...
-
Robo-Tech Inc. manufactures components for computer games within a relevant range of 200,000 to 320,000 disks per year. Within this range, the following partially completed manufacturing cost...
-
Is developmental psychololgy a form of forensic psychology? If so how are they related? Were you surprised that this was a career in forensic psychology?
-
Consumer Research, owned by Chandler Robertson, is retained by large companies to test consumer reaction to new products. On January 31, 20X1, the firms worksheet showed the following adjustments...
-
Two weights are hanging as shown in the figure. (Figure 1) Figure 1 of 1 60 60 B C W Submit Request Answer Part C menu. Find the tension in cable A if w = 51.0 N and w2 = 200 N. Express your answer...
-
Given two sentences, s and t, t is a subsequence of s if all of the words in toccur in the same order within s. Words do not have to appear contiguously in s, but order must be maintained. For...
-
Design and implement a C++ program which, when executed by the computer, fills an array with pseudorandomly generated integer values between MIN VALUE and MAX_VALUE, which are constants. The array...
-
4. Perform the chase test for the lossless join property for the universal relation R(A1, A2, A3, A4), and the decomposition D and set of functional dependencies F given below: D = {R(A1, A2), R2(A1,...
-
84 cities were surveyed to determine sports teams. 22 had baseball, 20 had rugby, 16 had volleyball, 11 had baseball and rugby, 9 had baseball and volleyball, 9 had rugby and volleyball. 3 had all...
-
The only choices that a firm has for support department cost allocation rates are to use either a budgeted rate or an actual rate. The most common method to allocate support department costs is to...
-
For the grammar G with the following productions S-SS | T TaTb | ab show that G is ambiguous. Give a non-ambiguous grammar for L(G). If you wish to incorporate a diagram in your answer
-
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?
-
What does the Richter scale measure?
-
Where do earthquakes occur?
-
Why do earthquakes produce seismic waves?
Study smarter with the SolutionInn App