FIN1FOF Fundamentals of Finance Assignment

Assignment Help Financial Accounting

Reference no: EM133138235

FIN1FOF Fundamentals of Finance - La Trobe University

SCENARIO
Your team of three works in the Finance division of the Carlton Manufacturing Company Ltd. The company is in the process of deciding whether or not to purchase a new plastic injection machine. Your company's Chief Financial Officer has asked you to make a recommendation as to whether or not the company should proceed with the project based on the following information:

TASKS

You are required to complete the following tasks (show your working with the calculations):

Part 1: Calculate the company's Weighted Average Cost of Capital

a) Calculate the before-tax cost of bank loans, mortgage loans, and corporate bonds.
b) Calculate the (market) value of bank loans, mortgage loans, and corporate bonds.
c) Calculate the cost of ordinary shares and preference shares.
d) Calculate the market prices of ordinary shares and preference shares.
e) Calculate the total market values of ordinary shares and preference shares.
f) Calculate the company's WACC.

Part 2: Estimate the project's incremental free cash flows

a) Prepare the depreciation table of the equipment (see examples in Topic 7 seminar). Round up to whole numbers.
b) Prepare the free cash flow table (see examples in Topic 7 seminar). Round up to whole numbers.

Part 3: Calculate the project's NPV, Payback Period, and Profitability Index

a) Calculate NPV, Payback Period, and Profitability Index.
b) Should the project be accepted? Explain your answer.

Part 4: Evaluate the company's capital structure

a) The Carlton Manufacturing Company Ltd belongs to the Industrial sector. Identify three Industrial firms listed on the ASX, observe their debt ratios over the last five years, and determine whether the company is under or over-leveraged relative to its peers (no more than 200 words).

b) Discuss the advantages and disadvantages of debt financing (no more than 300 words).

Attachment:- Fundamentals of Finance.rar

Reference no: EM133138235

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