Forever Young was a public listed company running department stores and determined to open a new department store. The i
Posted: Thu Apr 28, 2022 1:30 pm
Forever Young was a
public listed company running department stores and determined to
open a new department store. The initial investment of the new
store was $1,500,000. The expected operating cost was $150,000 and
revenue was $420,000 for the next year. Both operation cost and
revenue were expected to be increased by 3% per year. Tax rate is
15%. The capital structure of the corporation as follows:
The corporation decided to use
Weighted Average Cost of Capital (WACC) as the required return rate
for all project investments.
REQUIRED:
(a) How much was the cost of equity? (3 marks)
(b) How much was the WACC of the corporation? (8
marks)
(c) How much would be the Net Present Value (NPV) of
the potential project for the next 10 years? Would it be worth for
investment? Explain. (14 marks)
public listed company running department stores and determined to
open a new department store. The initial investment of the new
store was $1,500,000. The expected operating cost was $150,000 and
revenue was $420,000 for the next year. Both operation cost and
revenue were expected to be increased by 3% per year. Tax rate is
15%. The capital structure of the corporation as follows:
The corporation decided to use
Weighted Average Cost of Capital (WACC) as the required return rate
for all project investments.
REQUIRED:
(a) How much was the cost of equity? (3 marks)
(b) How much was the WACC of the corporation? (8
marks)
(c) How much would be the Net Present Value (NPV) of
the potential project for the next 10 years? Would it be worth for
investment? Explain. (14 marks)