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The balance sheet and other information for TEXCO Ltd, a Brisbane-based, company are shown as...

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Accounting

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The balance sheet and other information for TEXCO Ltd, a Brisbane-based, company are shown as follows: SHE n Smi Current Assets Net fixed Assets Investments 10 20 30 Current Liabilities Long-term Debt Shareholders Equity 0 30 30 Total 60 Total 60 Corporate Tax Rate Current Share Price Number of ordinary shares on issue Last annual dividend paicd Dividend growth rate Equity Beta Expected Market Return Risk-free rate 30% S40 per share 10 mil S4.04 per share 4% 12% 7% TXL's long-term debt consists of 14% bonds issued with a face value of$30 million, paying semi-annual coupons. These bonds have exactly 5 years to maturity with 10 coupons to be paid. The market yield on the bonds is quoted at 12% p.a. Its equity consists entirely of ordinary shares. A. What is the firm's cost of equity? B. What is the firm's Weighted Average Cost of Capital (WACC)? (4 marks) (6 marks) C. TL consider to extend their existing business to Perth. The project costs $10mil now. TXL expects that starting from year 1, the annual Free Cash Flows will grow at a constant rate of 4% forever. What is the minimum first year Free Cash Flows (5 marks) (5 marks) so that TXL will accept this project? D. Briefly discuss the strengths and weaknesses of the FCF model

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