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Question 2 (25 marks) pelia Lad operates in fast moving consuemer goods industry. Sales of...

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Question 2 (25 marks) pelia Lad operates in fast moving consuemer goods industry. Sales of poper product rise and fall with $32,448 millions and common shareholders' equily at book value of 569,334 millions. The market value of is common stock is 5108,160 millions and its market equity bets is 0.85 . An equity buyout group is considering a leveroged buyout of Detta Lid as of the beginning of year 9 . the group intends to finance the buyout with 60% debit carrying an interest rate of 10%% and 40% a. Determine the unlevered equity beta of Delis Led before consideration of the leveraged buyout. Assume the book value of debt equals its market value. Tax rate is 35%. ( 4 marks) b. Determine the cost of equity capital with new capital strueture that results from the leveraged buyout. Assuming risk free rate is 5% and matket risk premium is 7%. ( 4 marks) c. Determine the weighted average cost of capital under new capital structure ( 3 marks) d. Assume the free cash flows to all debt and equity will grow at constant rate of 2% after year 5 . Compute the estimated value of firm. ( 9 marks)

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