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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Transcribed Image Text

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.

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