Compute the before- and after-tax costs of its debt

Assignment Help Accounting Basics

Reference no: EM131112947

QUESTIONS-

After a quick glance at the available information and the decision making requirements of the Gordon Crown, you have decided that at the minimum you have to do the following:

Question 1: For component costs:

A. Compute the before- and after-tax costs of ITS debt.

B. Compute the cost of equity (assuming all funds come from internal sources):

i. Using the constant growth Gordon Dividend Valuation Model

ii. Using the Security Market Line Equation (SML) from the CAPM

Question 2: Compute the Weighted Average Cost of Capital (WACC) based on cost of equity estimated under the Gordon's Constant Growth Dividend Valuation Model:

A. Using book value weights for debt and equity

B. Using market value weights for debt and equity

Question 3: Compute the WACC based on cost of equity estimated under the CAPM:

A. Using book value weights for debt and equity

B. Using market value weights for debt and equity

Question 4: Address the pros and cons of using market value weights versus book value weights and reconcile the divergent views of Crown and Chang.

Question 5: Compute the Required Rate of Return for the project(s), adding appropriate risk premiums subjectively to the WACC's in questions 2 and 3. These risk premiums can differ depending on the nature and continental location of the projects.

Question 6: Make a recommendation as to which, if any, of the investments identified in Table 6 should be accepted taking into account the capital constraint.

Attachment:- Global Cost of Capital.rar

Reference no: EM131112947

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