Finm3401 Cost Of Capital Calculation Assessment Answers
The report should comprise of two parts: cost of capital calculation part and cash flow analysis part. While you should include your cash flows tables in your report, you have to attach an excel spreadsheet to show how you calculate stock beta. The report should address all the questions mentioned in “Questions on the Project” (see the last page).
Each group will turn in one report electronically. Each group will need to assign only one member to submit both assignment files (one report in PDF format and one excel workbook).
Each group will turn in one report electronically. Each group will need to assign only one member to submit both assignment files (one report in PDF format and one excel workbook).
The report should be named in the following format The excel workbook should be named as Cover page: Each report should have a cover page that contains the following – the names of the group members followed by your student ID respectively in alphabetical order and the following summary information on the analysis:
Answer:
| Particular | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | Year 11 | Year 12 | Year 13 | Year 14 | Year 15 | ||||||||||||||||||||||||||||
| Revenue per store | 40.00 | 40.80 | 41.62 | 42.45 | 43.30 | 44.16 | 45.05 | 45.95 | 46.87 | 47.80 | 48.76 | 49.73 | 50.73 | ||||||||||||||||||||||||||||
| No. of Stores | 50 | 60 | 70 | 80 | 90 | 100 | 110 | 120 | 130 | 140 | 150 | 150 | 150 | ||||||||||||||||||||||||||||
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | Year 11 | Year 12 | Year 13 | Year 14 | Year 15 | Terminal Value | Particular | From Year 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | ||||||||||||||
| Sl. No. | Particulars | -3 | -2 | -1 | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | Cost of Opening new stores | 150 | 153 | 156.1 | 159.2 | 162.4 | 165.6 | 168.9 | 172.3 | 175.7 | 179.3 | |||||||||||||
| 1 | Revenue | 2,000.00 | 2,448.00 | 2,913.12 | 3,395.87 | 3,896.76 | 4,416.32 | 4,955.11 | 5,513.69 | 6,092.63 | 6,692.52 | 7,313.97 | 7,460.25 | 7,609.45 | Marketing Test | 250 | Sunk Cost | ||||||||||||||||||||||||
| 2 | Less: Expenditure | ||||||||||||||||||||||||||||||||||||||||
| - 80% of Revenue | 1,600.00 | 1,958.40 | 2,330.50 | 2,716.69 | 3,117.40 | 3,533.06 | 3,964.09 | 4,410.95 | 4,874.10 | 5,354.01 | 5,851.17 | 5,968.20 | 6,087.56 | ||||||||||||||||||||||||||||
| - Depn | 150.00 | 165.00 | 180.30 | 195.91 | 211.82 | 228.06 | 244.62 | 261.51 | 278.74 | 296.32 | 314.25 | 149.25 | 133.95 | Calculation of Depn | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | Particulars | Amount | |||||||||
| - Advertisment | 200.000 | 204.000 | 208.080 | 212.242 | 216.486 | 220.816 | 225.232 | 229.737 | 234.332 | 239.019 | 243.799 | 248.675 | 253.648 | Outlay | 1000 | 250 | 250 | 150 | 153.0 | 156.1 | 159.2 | 162.4 | 165.6 | 168.9 | 172.3 | 175.7 | 179.3 | 182.8 | Value of Investment | 3325.307 | |||||||||||
| - Allocation of Corporate Cost | 75 | 78 | 81.135 | 84.41145 | 87.83612 | 91.4161 | 95.15884 | 99.07216 | 103.1643 | 107.4437 | 111.9196 | 116.6013 | 121.4989 | - Depn of 50 Stores | 150 | 150 | 150 | 150 | 150 | 150 | 150 | 150 | 150 | 150 | 150 | Value of Depreciation | 2809.728 | ||||||||||||||
| - Depn of 10 Stores | 0 | 15 | 15 | 15 | 15 | 15 | 15 | 15 | 15 | 15 | 15 | Closing Value of Asset | 515.5791 | ||||||||||||||||||||||||||||
| 3 | Side Benefit | 14.194 | 14.48 | 14.77 | 15.06 | 15.36 | 15.67 | 15.98 | 16.30 | 16.63 | 16.96 | 17.30 | 17.65 | 18.00 | - Depn of 10 Stores | 0 | 0 | 15.3 | 15.3 | 15.3 | 15.3 | 15.3 | 15.3 | 15.3 | 15.3 | 15.3 | 15.3 | ||||||||||||||
| - Depn of 10 Stores | 0 | 0 | 0 | 15.6 | 15.6 | 15.6 | 15.6 | 15.6 | 15.6 | 15.6 | 15.6 | 15.6 | 15.6 | ||||||||||||||||||||||||||||
| 4 | Loss in Revenue | 128.57 | 128.57 | 128.57 | 128.57 | 128.57 | 128.57 | 128.57 | 128.57 | 128.57 | 128.57 | 128.57 | - Depn of 10 Stores | 0 | 0 | 0 | 0 | 15.9 | 15.9 | 15.9 | 15.9 | 15.9 | 15.9 | 15.9 | 15.9 | 15.9 | |||||||||||||||
| - Depn of 10 Stores | 0 | 0 | 0 | 0 | 0 | 16.2 | 16.2 | 16.2 | 16.2 | 16.2 | 16.2 | 16.2 | 16.2 | ||||||||||||||||||||||||||||
| 5 | Earning Before Tax | -139.38 | -71.49 | -0.69 | 73.11 | 150.00 | 230.07 | 313.42 | 400.15 | 490.34 | 584.11 | 681.56 | 995.18 | 1,030.80 | - | - Depn of 10 Stores | 0 | 0 | 0 | 0 | 0 | 0 | 16.6 | 16.6 | 16.6 | 16.6 | 16.6 | 16.6 | 16.6 | ||||||||||||
| - Depn of 10 Stores | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 16.9 | 16.9 | 16.9 | 16.9 | 16.9 | 16.9 | ||||||||||||||||||||||||||||
| 7 | Tax | -41.81 | -21.45 | -0.21 | 21.93 | 45.00 | 69.02 | 94.03 | 120.04 | 147.10 | 175.23 | 204.47 | 298.55 | 309.24 | - | - Depn of 10 Stores | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 17.2 | 17.2 | 17.2 | 17.2 | 17.2 | ||||||||||||
| - Depn of 10 Stores | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 17.6 | 17.6 | 17.6 | 17.6 | ||||||||||||||||||||||||||||
| 8 | Earning after tax | - | -97.56 | -50.05 | -0.49 | 51.17 | 105.00 | 161.05 | 219.40 | 280.10 | 343.24 | 408.88 | 477.09 | 696.62 | 721.56 | - | - Depn of 10 Stores | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 17.9 | 17.9 | 17.9 | |||||||||||
| 150 | 165 | 180.3 | 195.9 | 211.8 | 228.1 | 244.6 | 261.5 | 278.7 | 296.3 | 314.2 | 149.2 | 133.9 | |||||||||||||||||||||||||||||
| 9 | Depreciation | 0 | 150 | 165 | 180.3 | 195.906 | 211.8241 | 228.0606 | 244.6218 | 261.5143 | 278.7445 | 296.3194 | 314.2458 | 149.2458 | 133.9458 | ||||||||||||||||||||||||||
| Particular | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | Year 11 | Year 12 | Year 13 | Year 14 | Year 15 | ||||||||||||||||||||||||||||
| 10 | Profit after tax cashflows | - | 52.44 | 114.95 | 179.81 | 247.08 | 316.82 | 389.11 | 464.02 | 541.62 | 621.99 | 705.20 | 791.34 | 845.87 | 855.50 | - | Advertisement Cost (W/o Furniture) | 1000.00 | 1020.00 | 1040.40 | 1061.21 | 1082.43 | 1104.08 | 1126.16 | 1148.69 | 1171.66 | 1195.09 | 1218.99 | 1243.37 | 1268.24 | |||||||||||
| Advertisement Cost (With Furniture) | 1200.00 | 1224.00 | 1248.48 | 1273.45 | 1298.92 | 1324.90 | 1351.39 | 1378.42 | 1405.99 | 1434.11 | 1462.79 | 1492.05 | 1521.89 | ||||||||||||||||||||||||||||
| 11 | Value of asset at the end of 15 years | 515.5791182 | Incremental Cost | 200.000 | 204.000 | 208.080 | 212.242 | 216.486 | 220.816 | 225.232 | 229.737 | 234.332 | 239.019 | 243.799 | 248.675 | 253.648 | |||||||||||||||||||||||||
| 12 | Increase in Working Capital | Particular | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | Year 11 | Year 12 | Year 13 | Year 14 | Year 15 | ||||||||||||||||||||||||||
| -Receivables | 200.00 | 44.80 | 46.51 | 48.27 | 50.09 | 51.96 | 53.88 | 55.86 | 57.89 | 59.99 | 62.14 | 14.63 | 14.92 | 760.95 | G&A Cost | 500 | 525 | 551.25 | 578.8125 | 607.753125 | 638.1408 | 670.0478 | 703.5502 | 738.7277 | 775.6641 | 814.4473 | 855.1697 | 897.9282 | |||||||||||||
| -Inventory | 160.00 | 35.84 | 37.21 | 38.62 | 40.07 | 41.57 | 43.10 | 44.69 | 46.32 | 47.99 | 49.72 | 11.70 | 11.94 | 608.76 | 10% | 50 | 52.5 | 55.13 | 57.88 | 60.78 | 63.81 | 67.00 | 70.36 | 73.87 | 77.57 | 81.44 | 85.52 | 89.79 | |||||||||||||
| -Payables | 80.00 | 17.92 | 18.60 | 19.31 | 20.04 | 20.78 | 21.55 | 22.34 | 23.16 | 24.00 | 24.86 | 5.85 | 5.97 | 304.38 | Incremental | 25 | 25.5 | 26.01 | 26.53 | 27.06 | 27.60 | 28.15 | 28.72 | 29.29 | 29.88 | 30.47 | 31.08 | 31.71 | |||||||||||||
| Total Cost | 75 | 78 | 81.1 | 84.4 | 87.8 | 91.4 | 95.2 | 99.1 | 103.2 | 107.4 | 111.9 | 116.6 | 121.5 | ||||||||||||||||||||||||||||
| 13 | Investment made | -1000 | -250 | -250 | -150 | -153 | -156.06 | -159.1812 | -162.3648 | -165.6121 | -168.9244 | -172.3029 | -175.7489 | -179.2639 | -182.8492 | ||||||||||||||||||||||||||
| 14 | Net cash flow | -1000 | -250 | -690 | -196.12406 | -140.3717 | -82.45038 | -22.29709 | 40.15258 | 104.9647 | 172.2069 | 241.9487 | 314.261 | 389.2167 | 576.3074 | 813.0438 | 855.505 | 2189.658287 | |||||||||||||||||||||||
| Particular | Amount | ||||||||||||||||||||||||||||||||||||||||
| 15 | Discount rate | 1 | 0.920697 | 0.84768 | 0.78045797 | 0.718565 | 0.66158 | 0.609115 | 0.56081 | 0.516336 | 0.475388 | 0.437688 | 0.402978 | 0.371021 | 0.341597 | 0.314508 | 0.289566 | 0.289566027 | Revenue | 94595 | |||||||||||||||||||||
| Pre-tax operating Margin | 13427 | ||||||||||||||||||||||||||||||||||||||||
| 16 | Present value of Cash flows | -1000 | -230.174 | -584.9 | -153.06659 | -100.8662 | -54.54755 | -13.58149 | 22.51796 | 54.19701 | 81.86518 | 105.8981 | 126.6403 | 144.4074 | 196.8651 | 255.7084 | 247.7252 | 634.0506504 | Rate | 14.2% | |||||||||||||||||||||
| 17 | Net Present Value | -267.261169 | Rejected | ||||||||||||||||||||||||||||||||||||||
| Company Name | Regression Beta | Total Debt | Total Market Cap | Equity | Beta* Market Cap | ||||||||||||||||||||||||||||||||||||
| Mohawk Industries | 1.18 | 2511.5 | 16690.9 | 14179.4 | 19695.262 | ||||||||||||||||||||||||||||||||||||
| Leggett & Platt Incorporated | 1.1 | 959.8 | 6552.1 | 5592.3 | 7207.31 | ||||||||||||||||||||||||||||||||||||
| Tempur Sealy Internaltional Inc | 1.39 | 1888.1 | 2529.1 | 641 | 3515.449 | ||||||||||||||||||||||||||||||||||||
| La-Z-Boy Incorporated | 1.34 | 0.59 | 1386.4 | 1385.81 | 1857.776 | ||||||||||||||||||||||||||||||||||||
| Ethan Allen Interiors Inc. | 1.28 | 40.3 | 797.5 | 757.2 | 1020.8 | ||||||||||||||||||||||||||||||||||||
| Flexsteel Industries, Inc. | 1.82 | 0 | 412.7 | 412.7 | 751.114 | ||||||||||||||||||||||||||||||||||||
| A-Mart Furniture Corporation | 0.86 | 49 | 383.6 | 334.6 | 329.896 | ||||||||||||||||||||||||||||||||||||
| Bassett Furniture Industries, Inc. | 1.23 | 7.11 | 293.8 | 286.69 | 361.374 | ||||||||||||||||||||||||||||||||||||
| Nova Lifestyle, Inc. | 0.99 | 8.03 | 48.2 | 40.17 | 47.718 | ||||||||||||||||||||||||||||||||||||
| Stanley Furniture Company, Inc | 1.32 | 0 | 11.9 | 11.9 | 15.708 | ||||||||||||||||||||||||||||||||||||
| Total | 5464.43 | 29106.2 | 23641.77 | 34802.407 | |||||||||||||||||||||||||||||||||||||
| Weighted beta | 1.195704249 | ||||||||||||||||||||||||||||||||||||||||
| Debt Equity | 23.11% | ||||||||||||||||||||||||||||||||||||||||
| Unlevered beta | 1.029187665 | ||||||||||||||||||||||||||||||||||||||||
| Beta for WOW | 1.166070 | ||||||||||||||||||||||||||||||||||||||||
| Weighted Average Cost of Capital (Project) | |||||||||||||||||||||||||||||||||||||||||
| Particular | Rate | Tax | Net | Weight | Net | ||||||||||||||||||||||||||||||||||||
| Debt | 4% | 30% | 2.8% | 19% | 0.53200% | ||||||||||||||||||||||||||||||||||||
| Equity | 9.72% | 9.72% | 100% | 9.71797% | |||||||||||||||||||||||||||||||||||||
| Total | 119% | 10% | |||||||||||||||||||||||||||||||||||||||
| WACC | 8.61% | ||||||||||||||||||||||||||||||||||||||||
| cost of Equity | |||||||||||||||||||||||||||||||||||||||||
| Risk Free rate | 2.5% | ||||||||||||||||||||||||||||||||||||||||
| Risk Premium | 6.19% | ||||||||||||||||||||||||||||||||||||||||
| Beta | 1.166070 | ||||||||||||||||||||||||||||||||||||||||
| cost of Equity | 9.72% | ||||||||||||||||||||||||||||||||||||||||
| Weighted Average Cost of Capital (Current) | |||||||||||||||||||||||||||||||||||||||||
| Particular | Rate | Tax | Net | Weight | Net | ||||||||||||||||||||||||||||||||||||
| Debt | 4% | 30% | 2.8% | 19% | 0.53200% | ||||||||||||||||||||||||||||||||||||
| Equity | 8.01% | 8.01% | 100% | 8.00910% | |||||||||||||||||||||||||||||||||||||
| Total | 119% | 9% | |||||||||||||||||||||||||||||||||||||||
| WACC | 7.18% | ||||||||||||||||||||||||||||||||||||||||
| cost of Equity | |||||||||||||||||||||||||||||||||||||||||
| Risk Free rate | 2.5% | ||||||||||||||||||||||||||||||||||||||||
| Risk Premium | 6.19% | ||||||||||||||||||||||||||||||||||||||||
| Beta | 0.890000 | https://www.reuters.com/finance/stocks/overview/WOW.AX | |||||||||||||||||||||||||||||||||||||||
| cost of Equity | 8.01% | ||||||||||||||||||||||||||||||||||||||||
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