This time, imagine you are a recent BCom graduate and have started working for PureMeat Company, a small but successful meat processing business that delivers premium cuts fresh, packaged and frozen to all supermarket chains across both the South and North Islands of New Zealand. PureMeat is currently in the process of evaluating whether to expand its business into Asian countries. The most recent balance sheet at fiscal year end 2021 is as follows: PureMeat Corporation Balance Sheet as at 30 April 2021 Assets $000 Liabilities & Equity $000 Cash 75 Accounts Payable 672 Accounts Receivable 855 Accrued Marketing Expense 9 Inventory 650 Accrued G&A Expense 18 Total Current Assets 1,580 Total Current Debt 699 Fixed Assets 1,957 Long Term Debt 700 Accumulated Depreciation (795) Share capital 950 Net Fixed Assets 1,162 Retained Earnings 393 Total Assets 2,742 Total Debt and Equity 2,742 The company has 550,000 shares outstanding, which are selling for $3.98 per share. Its debt is selling at book value with a yield to maturity of 8.8%. From available market data you estimate the return on the market and inflation to be 9.5% and 1.5% respectively. The company's beta is 1.45 and the company tax rate in New Zealand is 28%. Calculate the weighted average cost of capital.
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This time, imagine you are a recent BCom graduate and have started working for PureMeat Company, a small but successful meat processing business that delivers premium cuts fresh, packaged and frozen to all supermarket chains across both the South and North Islands of New Zealand. PureMeat is currently in the process of evaluating whether to expand its business into Asian countries. The most recent balance sheet at fiscal year end 2021 is as follows:
PureMeat Corporation
Balance Sheet
as at 30 April 2021
|
Assets |
$000 |
|
Liabilities & Equity |
$000 |
|
Cash |
75 |
|
Accounts Payable |
672 |
|
|
855 |
|
Accrued Marketing Expense |
9 |
|
Inventory |
650 |
|
Accrued G&A Expense |
18 |
|
Total Current Assets |
1,580 |
|
Total Current Debt |
699 |
|
Fixed Assets |
1,957 |
|
Long Term Debt |
700 |
|
|
(795) |
|
Share capital |
950 |
|
Net Fixed Assets |
1,162 |
|
|
393 |
|
Total Assets |
2,742 |
|
Total Debt and Equity |
2,742 |
The company has 550,000 shares outstanding, which are selling for $3.98 per share.
Its debt is selling at book value with a yield to maturity of 8.8%.
From available market data you estimate the return on the market and inflation to be 9.5% and 1.5% respectively.
The company's beta is 1.45 and the company tax rate in New Zealand is 28%.
Calculate the weighted average cost of capital.
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