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ThefollowingforecastsforGassonTronicsweretakenfromanalyst’sreportsinthefourth quarterof2018 ($ millions). IncomeStatement: 2019 2020 2021 2022 2023 Revenues 1900 2075 2311 2598 2919 OperatingExpenses(bef int. &dep.) 1371 1546 1747 1975 2240 Depreciation 100 107 111 114 107 BalanceSheet: Change inNet WorkingCapital 81 91 103 116 129 Additions toGross FixedAssets (CAPEX) 174 190 205 220 225 OtherInformation Expectedeffective taxrate 30% Debt / Total Capital 40% Marginal Debt Rate    4% Beta 0.70 Risk FreeRate 2.75% ExpectedMarket Return   9.75% Cash & Non-Operating Assets (mil)       150 Outstandingshares (mil)              70 Usetheaboveinformationtoanswerthefollowingquestions: A. UsingtheCapitalAssetPricingModel,estimatethecostofequity.                      B. Estimatetheweightedaveragecostofcapitalassumingthecompanymaintainsitscurrent capitalstructure. C. Estimate...

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Finance

ThefollowingforecastsforGassonTronicsweretakenfromanalyst’sreportsinthefourthquarterof2018 ($ millions).

IncomeStatement:

2019

2020

2021

2022

2023

Revenues

1900

2075

2311

2598

2919

OperatingExpenses(befint. &dep.)

1371

1546

1747

1975

2240

Depreciation

100

107

111

114

107

BalanceSheet:

Change inNetWorkingCapital

81

91

103

116

129

Additions toGrossFixedAssets (CAPEX)

174

190

205

220

225

OtherInformation

Expectedeffectivetaxrate

30%

Debt / TotalCapital

40%

Marginal DebtRate

   4%

Beta

0.70

Risk FreeRate

2.75%

ExpectedMarketReturn

  9.75%

Cash &Non-Operating Assets (mil)

      150

Outstandingshares(mil)

             70

Usetheaboveinformationtoanswerthefollowingquestions:

A.UsingtheCapitalAssetPricingModel,estimatethecostofequity.

                    

B.Estimatetheweightedaveragecostofcapitalassumingthecompanymaintainsitscurrentcapitalstructure.

C. Estimate theshare price using Free Cash Flows toall providersofc apita landassuming the company’s cash flows continue to grow a t3% after theforecas tperiod.

Answer & Explanation Solved by verified expert
3.7 Ratings (544 Votes)
a Cost of equity ke riskfree rate betamarket risk premium 275 070975275 765 b Cost of debt 4 Aftertax cost of debt kd 41tax rate 4130 280 DebtTotal Capital DTC 40 Therefore EquityTotal Capital ETC 60 WACC keETC kdDTC 76506 28004 571 c n 1 2 3 4    See Answer
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ThefollowingforecastsforGassonTronicsweretakenfromanalyst’sreportsinthefourthquarterof2018 ($ millions).IncomeStatement:20192020202120222023Revenues19002075231125982919OperatingExpenses(befint. &dep.)13711546174719752240Depreciation100107111114107BalanceSheet:Change inNetWorkingCapital8191103116129Additions toGrossFixedAssets (CAPEX)174190205220225OtherInformationExpectedeffectivetaxrate30%Debt / TotalCapital40%Marginal DebtRate   4%Beta0.70Risk FreeRate2.75%ExpectedMarketReturn  9.75%Cash &Non-Operating Assets (mil)      150Outstandingshares(mil)             70Usetheaboveinformationtoanswerthefollowingquestions:A.UsingtheCapitalAssetPricingModel,estimatethecostofequity.                    B.Estimatetheweightedaveragecostofcapitalassumingthecompanymaintainsitscurrentcapitalstructure.C. Estimate theshare price using Free Cash Flows toall providersofc apita landassuming the company’s cash flows continue to grow a t3% after theforecas tperiod.

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