What is the cost of equity for abc company

Reference no: EM13813167

1. TAMU Inc. is for sale and there is a price tag of $225,000. Your company, ABC, who is considering the purchase, has a beta of 1.5, the market is expected to have a 20% return and the risk-free rate is 5%. The forecasted free cash flows for the next 4 years for TAMU are 7000 (FCF1), 22000(FCF2), 0(FCF3), and 50000 (FCF4). The company is expected to grow at 4% indefinitely after that. Your company has a debt/equity ratio of 2/3 and the applicable tax rate is 35%. ABC's cost of debt (before taxes) is 8%. What is the cost of equity for ABC Company?

• 35%

• 30%

• 27.5%

• 22.5%

2. Continuing with the information from Q 1, what is ABC's WACC?

• 18.58%

• 19.70%

• 21.41%

• 15.88%

3. Continuing with the information from Q 1, what is the terminal value for TAMUC Inc. after the 4th year (TV4)

• 342,935.53

• 254,769.21

• 269,106.57

• 356,652.95

4. Continuing with the information from Q1, what is the NPV of purchasing TAMU Inc.?

• positive 2,220.43

• negative 2,220.43

• positive 178,490.54

Reference no: EM13813167

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