MC6122 Given the following information for Clean Technologies Berhad (CTB), find

Question

MC6122 Given the following information for Clean Technologies Berhad (CTB), find the WACC. Assume the tax rate is 35 percent. a) ds putstanding RM1,000 par value. Debt: Common Stock: Preferred Stock: Market 8 years to maturity selling for 103 percent of par, the bonds make annual payments. 75,000 shares outstanding selling for RM50 per share, the beta is 0.85 10,000 shares of 5 percent preferred stock outstanding, currently selling for RM80 per share 5 percent market risk premium and 6 percent risk-free rate. Hints: First, find market value (MV) of these sources of financing (MVDbi MV Equity, and MV Prefered Stock), then calculate the value of the firm (V). You also need to calculate YTM for the bond. (15 points) b) Clean Energy Supplies Berhad (CESB) is a competitor to Smart Energy Generator Berhad (SEGB) and CESB is considering a project that will result in initial after tax cash savings of RM9 million at the end of the first year, and these savings will grow at a rate of 5 percent per year indefinitely. The firm has a target debt/equity ratio of 0.75, a cost of equity of 22 percent, and after-tax cost of f 10 percent. The cost-saving proposal is somewhat riskier than the usual project the firm decides to use the subjective approach and applies an t factor of +3 percent to the cost of capital for such risky projects. Under what debt o undertakes. Therefore, the management circumstances should CESB take the project? Hint:Calculate the cost of the project and your recommendation is based on this cost. (10 points) ESTION 4 (9 points) Some of the most colorful language of finance comes from defensive tactics used in mergers and acquisitions transactions. Poison pills, golden parachutes, crown jewels, white knight, and greenmail daccrihe yarious antitakeover tactics

Explanation / Answer

As per policy, only one question is allowed to answer at a time, so answering Q 3a :

Q 3a) MV of debt= 2500 * 1000 * 103% = 2575000 MV of equity = 75000* 50 = 3750000 MV of Pref. stock = 10000 * 80 = 800000 Total MV= 7125000 Cost of debt before tax = 7.75% cost of equity = rf + B * mp = 0.06 + 0.85 * 0.05 = 10.25% Cost of Pref. stock = 5% WACC = (2575/7125) * 0.0775 * (1- 0.35) + (3750/7125) * 0.1025 + (800/7125) * 0.05 WACC = 0.0778 OR 7.78%

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