80.2K

Verified Solution

Link Copied!

Project Objective: The objective of this project is to estimate the WACC for BlueShirt Corporation, a fictitious publicly traded company in the apparel industry. Project Requirements: Calculate the cost of market equity (Re) using the Capital Asset Pricing Model (CAPM) formula: Re = Rf + * (Rm - Rf), where Rf is the risk-free rate, is the beta, and Rm - Rf is the market risk premium. Calculate the cost of debt (Rd) Calculate the cost of preferred stock (Rp) Calculate the proportion of common equity (E/V), preferred stock (P/V) and the proportion of debt (D/V) in the company's capital structure, where E is the equity and D is the debt. Calculate the company market value WACC Cacluate the book value of equity using the Dividend growth model. What does this tell you about the firm, does the market expect to grow faster, underpeform, or perfrom at market level based on the difference between book and market value of equity. Compare the cost of Equity (Re) of this company to 3 publicly traded companies (only Re, as others will be difficult to find). Use the listed beta you find for them and same market risk premium and risk free rate as above. Write a paragraph on whether BlueShirt appears more, less, or the same risk level based on your brief analysis Assets Current Assets $2,000,000 Property, Plant, and Equipment (PP&E) $3,000,000 Total Assets $5,000,000 Liabilities and Equity Current Liabilities $1,000,000 Long-term Debt $1,500,000 Equity $2,500,000 Total Liabilities and Equity $5,000,000 Revenue $ 5,000,000 COGS $ 3,200,000 Gross Profit $ 1,800,000 Operating Expenses $ 1,200,000 EBIT $ 600,000 Interest $ 100,000 EBITDA $ 500,000 Taxes (30%) $ 150,000 NI $ 350,000 Number of equity shares 100,000 Market Value of Preferred Stock $ 900,000 Expected Dividend $ 1.35 Expected Growth 3.25% # of Preferred Stock shares $ 100,000 Preferred Stock Dividend $ 1.50 Beta 1.40 T-bill rate 3.00% Market Risk Premium 6.00% Tax Rate 30.00%

Answer & Explanation Solved by verified expert

See Answer