Gangnam Corp is a South Korea-based music entertainment company, but is interested in launching a new line of clothes and sunglasses under the brand name PSY in hopes of becoming an international phenomenon. They have surveyed the clothing industry and have identified Style Inc. as the closest pure - play firm for the proposed PSY division. Gangnam Corp has a beta of 1.45 and is 64% equity-financed. Style Inc. has an equity beta of 2.24 and a debt-equity ratio of 0.14. The risk-free rate of return is 1.8 percent and the market risk premium is 6.1 percent. What cost of equity should Gangnam Corp use for its PSY apparel division? Assume taxes are 39% and that Gangnam Corp will maintain its current capital structure for its new apparel division.
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- Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Dell Computer is very similar to your computer division, in terms of both risk and financing. You go online and find the following information: Dell's beta is 1.22, the risk-free rate is 4.3%, its market value of equity is $66.2 billion, and it has $706 million worth of debt with a yield to maturity of 6.4%. Your tax rate is 38% and you use a market risk premium of 5.3% in your WACC estimates. a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACC is 11.9% and the computer sales division represents 35% of the value of your firm, what is an estimate of the WACC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield. a. What is an estimate of the WACC for your computer sales division? The…Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Dell Computer is very similar to your computer division, in terms of both risk and financing. You go online and find the following information: Dell's beta is 1.19, the risk-free rate is 4.2%, its market value of equity is $66.5 billion, and it has $705 million worth of debt with a yield to maturity of 5.5%. Your tax rate is 35% and you use a market risk premium of 5.5% in your WACC estimates. a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACC is 12.1% and the computer sales division represents 37% of the value of your firm, what is an estimate of the WAC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield.Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Dell Computer is very similar to your computerdivision, in terms of both risk and financing. You go online and find the following information: Dell's beta is 1.16, the risk-free rate is 4.6% its market value of equity is $65.5 billion, and it has $ 696 million worth of debt with a yield to maturity of 6.5%. Your tax rate is 38% and you use a market risk premium of 5.5% in your WACC estimates. a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACC is 11.9% and the computer sales division represents 41% of the value of your firm, what is an estimate of the WACC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield.
- Lana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?In addition to footwear, Kenneth Cole Productions designs and sells handbags, apparel, and other accessories. You decide, therefore, to consider comparables for KCP outside the footwear industry. You also know the following about KCP: it has sales of $518 million, EBITDA of $55.6 million, excess cash of $100 million, $3 million of debt, EPS of $1.65, book value of equity of $12.05 per share, and 21 million shares outstanding. a. Suppose that Fossil, Inc., has an enterprise value to EBITDA multiple of 11.51 and a P/E multiple of 16.01. What share price would you estimate for KCP using each of these multiples, based on the data for KCP? b. Suppose that Tommy Hilfiger Corporation has an enterprise value to EBITDA multiple of 8.46 and a P/E multiple of 17.86. What share price would you estimate for KCP using each of these multiples based on the data for KCP? a. Suppose that Fossil, Inc., has an enterprise value to EBITDA multiple of 11.51 and a P/E multiple of 16.01. What share price would…Sinaloa Appliance, Incorporated, a private firm that manufactures home appliances, has hired you to estimate the company's beta. You have obtained the following equity betas for publicly traded firms that also manufacture home appliances. Pirm Robot Middleby's National Presto Nevell Brands Whirlpool Beta 0.94 1.89 Asset beta 0.14 1.09 1.79 Debt (5 millions) 50 762 D 11,943 4,520 Market Value of Equity 3,240 7,510 849 26,770 14,260 a. Estimate an asset beta for Sinaloa Appliance. Note: Round intermediate calculations and final answer to 3 decimal places.
- Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $120 million and a YTM of 6.8 percent. The company’s market capitalization is $260 million and the required return on equity is 15 percent. Joe’s currently has debt outstanding with a market value of $25.5 million. The EBIT for Joe’s next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 25 percent. a.What is the maximum share price that Happy Times should be willing to pay for…Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $150 million and a YTM of 4.9 percent. The company's market capitalization is $390 million and the required return on equity is 10 percent. Joe's currently has debt outstanding with a market value of $31 million. The EBIT for Joe's next year is projected to be $12 million. EBIT is expected to grow at 9 percent per year for the next five years before slowing to 2 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 8 percent, 14 percent, and 7 percent, respectively. Joe's has 1.9 million shares outstanding and the tax rate for both companies is 21 percent. a. What is the maximum share price that Happy Times should be willing to pay for…DCC exports high-speed digital switching networks, and their largest and most important clients are in Asia. A recent financial crisis in Asia has diminished the prospects of new sales to the Asian market in the near term. However, you believe that DCC is a good investment for the long term. Suppose you hold 1,000 shares of DCC and the following two options are available in the market: (a) Call A: Delta = 0.6674, Gamma = 0.0176 (b) Call B: Delta = 0.574, Gamma = 0.019 What should be the options holdings if the combined stock and options portfolio is both delta and gamma-neutral (up to two decimals)? Assume that one option contract is based on 100 units of the stock. O a. Short 73.7 contracts of Call A and long 68.27 contracts of Call B O b. Long 73.7 contracts of Call A and short 68.27 contracts of Call B Short 68.27 contracts of Call A and short 73.7 contracts of Call B O d. Long 73.7 contracts of Call A and long 68.27 contracts of Call B
- Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look glamorous. Below you will find selected information necessary to compute some valuation estimates for the firm. Assume the values provided are from year-end 2015. Also assume that the firm's equity beta is 1.40, the risk-free rate is 2.05 percent, and the market risk premium is 6.1 percent. Dividends per share Return on equity Book value per share 2015 value per share Average price multiple Forecasted growth rate Using P/E ratio Using P/CF ratio Using P/S ratio $ 2.28 8.50% $17.15 Share price Earnings Cash Flow $ 5.20 $6.70 13.30 9.48 13.52 11.518 Using the P/E, P/CF, and P/S ratios, estimate the 2016 share price for Beagle Beauties. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Sales $25.75 2.44 7.461Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $220 million and a YTM of 5.8 percent. The company's market capitalization is $460 million and the required return on equity is 12 percent. Joe's currently has debt outstanding with a market value of $34.5 million. The EBIT for Joe's next year is projected to be $14 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2.25 million shares outstanding and the tax rate for both companies is 23 percent. a. What is the maximum share price that Happy Times should be willing to pay for…Delta Games Private Limited is a digital gaming company creating fun-to-play games for millenials. Your firm is expecting to make a Series-A investment of $5 Mn in the Delta. Your firm's expected rate of return is 40% for a comparable investment. Before your investment, Delta's ownership is as follows: Founders: 50%, Seed Ventures: 50%, and it has 1,000,000 shares outstanding. This year. Gamma Games, a competitor of Delta had a PAT of $20 Mn, and was sold for $200 Mn. You should expect Delta to achieve an exit in Year 5 in similar proportions. In Year 5, Delta is expected to generate a PAT of $10 Mn. You expect no further capital raise to be done by Delta to achieve an exit in 5 years. 1 .Calculate the expected value of your firm's investment in 5 years and the stake that your firm must own in Delta 2.Calculate the number of shares to be issued in Series A and the per-share issuance price 3.Calculate the Pre-Money and Post-Money Equity Valuation that your firm should be willing to…