Forbes, May 28, 2020 “Big Hit Entertainment (BHE), the South Korean company that houses BTS and several other K-pop acts

[answerhappygod]

Forbes, May 28, 2020 “Big Hit Entertainment (BHE), the South
Korean company that houses BTS and several other K-pop acts, filed
for an initial public offering (IPO).” IPO means that the common
stock of BHE becomes available in the stock exchange for public
trading. After reading this article, you valued BHE’s stock.
Financial information for 2019 (Unit: billion won, except for
%)
 Sales: 587 EBIT: 105 Depreciation: 5 CAPEX: 25 Net Income:
78.15
 No working capital investment
 Interest Expense*(1-t) = 0.6 Change in net debt = – 10 (note
the minus sign!)
 Tax rate = 25%, Capital structure and tax rate will remain
unchanged.
 Number of shares outstanding = 35,623,760 shares
A. (10 pts) Assume that the beta of the company’s stock is the
same as the overall market. Risk free rate is 3% and market risk
premium is 7%. BHE’s target debt-to-value and equity-to-value ratio
is 50% each. After tax rate of debt is 4% (rD*(1-t) = 4%).
(1) What is required return for BHE stock?
(2) What is WACC of BHE?
B. (20 pts) Assume that you value BHE at the end of 2019 (T=0).
For simplicity, estimate FCFE of 2020 from FCFE of 2019 (FCFE0) and
growth rate of 8.7%, which will be applied thereafter forever. What
is the TOTAL equity value of BHE? (No need to compute per share
value.)