Topic: Calculation of WACC and Capital Budgeting Analysis
ANF Inc., a garment manufacturer, is planning to install a new plant at a cost of Rs.
1,500,000. It also requires an initial investment of Rs. 200,000 in net working capital in
first year. This investment in net working capital will be recovered at the end of useful
life of plant. Plant’s expected economic life is 5 year. At the end of that period, its
salvage value is estimated to be Rs. 150,000.
Expected pre-tax cash inflows by installation of new plant are: Rs. 500,000 in year1,
Rs. 600,000 in year2, Rs. 700,000 in year3, Rs. 750,000 in year4 and Rs. 800,000 in
year5. ANF Inc. uses straight line method of depreciation for plant and its tax rate is
30%. For capital budgeting purposes, company’s policy is to assume that the cash flows
occur at the end of year. The plant will begin operations immediately after the
investment is made.
ANF Inc. stock currently sells for Rs. 50 and company is expected to pay a dividend of
Rs. 5 at the growth rate of 2% to its shareholders. ANF Inc. target debt to equity ratio is
40:60 and it’s before tax cost of debt is 10% and the company’s tax rate is 30%.
Requirements:
Based upon above given information, being the student of finance, you are required to
1) Calculate the Cost of Equity. (2 marks)
2) Calculate the Weighted Average Cost of Capital. (2 marks)
3) Calculate NPV of the project. (5 marks)
4) Calculate IRR by using interpolation formula.(5 marks)
5) Whether the project is feasible to undertake? Support your answer with logical
reason(s). (1 mark)
Tags:
Part 1 can be solved by taking lecture number 5. It will be very easy!
not sure about part 2!
YTM in part 3 can be calculated by using this tool: http://www.prenhall.com/divisions/bp/app/cfl/BV/YTM.html
but I'm bit confused with the formula
any one send me plzzzzz formula for this assigment plzzzzzzz i confused......
MY DEARS the last date may b 3rd MAY>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
formula kia use kia hia Taim apney for first part?
476 Bond A
168.46 Bond B
kia yahi price hai currnet bond ki?
I got 937 and 904 for Bond A and Bond B.
Lecture 5 main jo formula hai for calculating Bond current value. Jis main firstly we have to calculate PV of Annuity/Coupon Payments and then the PV of Principle Amount. Then un dono ko add karnay k bhd Present Value of Bond ajaye gi!
well woh to maine b daikha hia muje ya batoo book may 80 per year hein to hum 1000 per 16% leinge? to per year ayga?
howwwwwwwwwwwwwwww??/
Please Discuss here about this assignment.Thanks
Our main purpose here discussion not just Solution
We are here with you hands in hands to facilitate your learning and do not appreciate the idea of copying or replicating solutions.
How to Calculate Yield to Maturity
Yield to Maturity (YTM) for a bond is the total return, interest plus capital gain, obtained from a bond held to maturity. Yield to maturity is a useful measure of the attractiveness of a seasoned bond that is held to maturity and redeemed at par value. For example, suppose you buy a $1000 par value ABC Company bond with a 5% coupon rate maturing in five years, and the market price for the bond is $900. The coupon rate is the annual interest rate payable on the $1000 par value, which is $50 per year. The current yield of the bond is the interest divided by the current price of the bond, which is $50/$900, or 5.56%. On redemption of the bond after 5 years, you get $1000 for the matured bond, and realize $100 capital gain.
Yield to maturity takes into account both interest and capital gain return on the bond
Definition
The term Yield to Maturity also called as Redemption Yield often abbreviated as YTM and used when it comes to bond funds, is defined as the rate of return obtained by buying a bond at the current market price and holding it to maturity. Yield to Maturity is the index for measuring the attractiveness of bonds. When the price of the bond is low the yield is high and vice versa. YTM is beneficial to the bond buyer because a rising yield would decrease the bond price hence the same amount of interest is paid but for less money. Where the coupon payment refers to the total interest per year on a bond. Yield to maturity can be mathematically derived and calculated from the formula
YTM is therefore a good measurement gauge for the expected investment return of a bond. When it comes to online calculation, this Yield to Maturity calculator can help you to determine the expected investment return of a bond according to the respective input values. YTM deals only with the time-value-of-money calculations between the price, coupons and face value of the bond at hand, not with other potential future investments. If the coupons and face value are paid as promised the bond earns its yield-to-maturity
bhaiya.........
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