There is sufficient demand at the moment to justify the purchase of only one of the...

  

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There is sufficient demand at the moment to justify the purchase of only one of the machines. In order to assess the financial viability of each machine the CEO asked your team to undertake a project analysis and to provide advice that will assist her in has making a decision about which machine to purchase. To do this you have gathered some information (contained in the attached Appendices 1 -5) that you intend to use in an Excel spread-sheet based analysis. has issued 5 million shares that are traded on the NZX. The latest recorded price is $1.75 per share. has one outstanding bond issue, a 10-year 10%p.a. annual coupon bond that matures in exactly five years-time. Balance Sheet @ 31/9/2020 Current Assets Current Liabilities Cash 200,000 Accounts Payables 200,000 Accounts Receivables 120,000 Tax Due 100,000 Inventory 100,000 Non-Current Liabilities Bonds 5,000,000 Non-Current Assets PPE 9,880,000 Owners' Equity Share Capital 5,000,000 Total Assets 10,300,000 Total L+ OE 10,300,000 Appendix 2 - Market Data Company Tax Rate 28% Expected NZ Market Return 9.0% Risk Free Rate 2.0% Bond YTM 7.0% Activol Ltd., Beta 1.50 Appendix 3 - Machinery Data German Machines Chinese Machines Cost (installed) $250,000 $165,000 5 years $50,000 5 years $40,000 Expected useful life Residual/Sale Value @ Ys Depreciation Rate/Method 20% p.a. SL 20% p.a. SL Asset risk relative to company risk 1.25 times as risky Same risk Appendix 4 - Operating Data German Machine Chinese Machine Expected Revenue 1* year $500,000 $500,000 Revenue growth rate 3% 3% COGS (% of Revenue) 50% 50% Operating Expenses 1* year $110,000 $150,000 Operating Expenses growth rate 3% 4% Appendix 5 - Exclusions No allowance is to be made for changes in Net Working Capital Each machine can be disposed of at the end of 5 years at Book Value Cash noted in the Balance Sheet is held in a short-term deposit and is specifically earmarked Appendix 5 - Exclusions No allowance is to be made for changes in Net Working Capital Each machine can be disposed of at the end of 5 years at Book Value Cash noted in the Balance Sheet is held in a short-term deposit and is specifically earmarked for the acquisition of capital equipment/machinery Tasks 1. Determin Weighted Average Cost of Capital (WACC). There is sufficient demand at the moment to justify the purchase of only one of the machines. In order to assess the financial viability of each machine the CEO asked your team to undertake a project analysis and to provide advice that will assist her in has making a decision about which machine to purchase. To do this you have gathered some information (contained in the attached Appendices 1 -5) that you intend to use in an Excel spread-sheet based analysis. has issued 5 million shares that are traded on the NZX. The latest recorded price is $1.75 per share. has one outstanding bond issue, a 10-year 10%p.a. annual coupon bond that matures in exactly five years-time. Balance Sheet @ 31/9/2020 Current Assets Current Liabilities Cash 200,000 Accounts Payables 200,000 Accounts Receivables 120,000 Tax Due 100,000 Inventory 100,000 Non-Current Liabilities Bonds 5,000,000 Non-Current Assets PPE 9,880,000 Owners' Equity Share Capital 5,000,000 Total Assets 10,300,000 Total L+ OE 10,300,000 Appendix 2 - Market Data Company Tax Rate 28% Expected NZ Market Return 9.0% Risk Free Rate 2.0% Bond YTM 7.0% Activol Ltd., Beta 1.50 Appendix 3 - Machinery Data German Machines Chinese Machines Cost (installed) $250,000 $165,000 5 years $50,000 5 years $40,000 Expected useful life Residual/Sale Value @ Ys Depreciation Rate/Method 20% p.a. SL 20% p.a. SL Asset risk relative to company risk 1.25 times as risky Same risk Appendix 4 - Operating Data German Machine Chinese Machine Expected Revenue 1* year $500,000 $500,000 Revenue growth rate 3% 3% COGS (% of Revenue) 50% 50% Operating Expenses 1* year $110,000 $150,000 Operating Expenses growth rate 3% 4% Appendix 5 - Exclusions No allowance is to be made for changes in Net Working Capital Each machine can be disposed of at the end of 5 years at Book Value Cash noted in the Balance Sheet is held in a short-term deposit and is specifically earmarked Appendix 5 - Exclusions No allowance is to be made for changes in Net Working Capital Each machine can be disposed of at the end of 5 years at Book Value Cash noted in the Balance Sheet is held in a short-term deposit and is specifically earmarked for the acquisition of capital equipment/machinery Tasks 1. Determin Weighted Average Cost of Capital (WACC).

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Answer of WACC 1028354 or 1028 For calculating the WACC firstly we will note down th... View the full answer