Simply Bella Berhad expects to have free cash flow (FCF) of RM 10 million in the coming year. The FCF is expected to grow constantly at 5%. The cost of equity capital is 10% and the cost of debt capital is 4%. The company pays a corporate tax rate of 20% and the company maintains a debt-equity ratio of 2. You are required to answer the following using Modigliani – the Miller theorem while accounting for corporate taxes.

Required: 

i. Calculate the pre-tax WACC of Simply Bella Berhad.

ii. Synthesize the unlevered value of Simply Bella Berhad.

iii. Compute the levered WACC of Simply Bella Berhad considering corporate taxes.

iv. Synthesize the levered value of Simply Bella Berhad.

Answer rating: 100% (QA)

i Pretax WACC 10 x 1020 4 x 2 108 ii Unlevered v... View the full answer