Reference no: EM132944682
Questions -
Q1. Akita is trying to estimate the value of its business given the following information:
Government securities generates a yield of 4.5%
Akita, being a relatively mature business was able to determine its credit spread to be at 2.5% for a 3-year maturity instrument and increases by 0.5% for each additional year to maturity
Current debt instruments issued by Akita is only a Php1,000,000 debt instrument with a 5 year tenor issued last year carrying a 7% coupon
Other than the debt instrument issued, Akita also paid back shareholders at a Php8.00 dividend per share this year based on its Php10.0 earnings per share
Book value per share of equity instruments is currently at Php15.00 for 10,000 shares
How much is the WACC for Akita assuming that the current price per share is Php75.00 and tax rate at 30%?
Q2. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
What is the nominal risk-free rate?
Q3. Akita is trying to estimate the value of its business given the following information:
Government securities generates a yield of 4.5%
Akita, being a relatively mature business was able to determine its credit spread to be at 2.5% for a 3-year maturity instrument and increases by 0.5% for each additional year to maturity
Current debt instruments issued by Akita is only a Php1,000,000 debt instrument with a 5 year tenor issued last year carrying a 7% coupon
Other than the debt instrument issued, Akita also paid back shareholders at a Php8.00 dividend per share this year based on its Php10.0 earnings per share
Book value per share of equity instruments is currently at Php15.00
How much is the market value Akita's sole debt instrument?
Q4. Akita is trying to estimate the value of its business given the following information:
Government securities generates a yield of 4.5%
Akita, being a relatively mature business was able to determine its credit spread to be at 2.5% for a 3-year maturity instrument and increases by 0.5% for each additional year to maturity
Current debt instruments issued by Akita is only a Php1,000,000 debt instrument with a 5 year tenor issued last year carrying a 7% coupon
Other than the debt instrument issued, Akita also paid back shareholders at a Php8.00 dividend per share this year based on its Php10.0 earnings per share
Book value per share of equity instruments is currently at Php15.00
How much is the cost of debt for Akita's sole debt instrument?
Q5. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
How much is the weighted average cost of capital assuming cost of debt is at 7.25% and tax rate is at 30%?
Q6. Akita is trying to estimate the value of its business given the following information:
Government securities generates a yield of 4.5%
Akita, being a relatively mature business was able to determine its credit spread to be at 2.5% for a 3-year maturity instrument and increases by 0.5% for each additional year to maturity
Current debt instruments issued by Akita is only a Php1,000,000 debt instrument with a 5 year tenor issued last year carrying a 7% coupon
Other than the debt instrument issued, Akita also paid back shareholders at a Php8.00 dividend per share this year based on its Php10.0 earnings per share
Book value per share of equity instruments is currently at Php15.00
How much is the expected cost of equity assuming that the current price per share is Php75.00?
Q7. Alexa Co. is the value of its equity given the following information:
Government risk-free rates today stands at 4.5%
Alexa is expected to declare dividends amounting to Php10.00 next year
Dividends are expected to grow at 20% per year until year 5 and stabilizes at 4% beginning year 6 onwards
Beta is currently estimated at 2.0
Equity risk premium is estimated at 4%
How much is the price today of Alexa's share?
Q8. Alexa Co. is the value of its equity given the following information:
Government risk-free rates today stands at 4.5%
Alexa is expected to declare dividends amounting to Php10.00 next year
Dividends are expected to grow at 20% per year until year 5 and stabilizes at 4% beginning year 6 onwards
Beta is currently estimated at 2.0
Equity risk premium is estimated at 4%
How much is the cost of equity?
Q9. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
What is the total value of debt instruments?
Q10. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
The following summarizes the free cash flows for Little Lemon:
Year 1 - Php200,000
Year 2 - Php300,000
Year 3 - Php400,000
Year 4 - Php600,000
Year 5 - Php1,000,000
Little Lemon with cease operations after year 5
What is the equity value of Little Lemon assuming weighted average cost of debt is at 7.25% and tax rate is at 30%? Make sure to use WACC rounded to the second decimal point.
Q11. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
What is the cost of equity?
Q12. Alexa Co. is the value of its equity given the following information:
Government risk-free rates today stands at 4.5%
Alexa is expected to declare dividends amounting to Php10.00 next year
Dividends are expected to grow at 20% per year until year 5 and stabilizes at 4% beginning year 6 onwards
Beta is currently estimated at 2.0
Equity risk premium is estimated at 4%
How much is the market risk premium for Alexa?
Q13. Akita is trying to estimate the value of its business given the following information:
Government securities generates a yield of 4.5%
Akita, being a relatively mature business was able to determine its credit spread to be at 2.5% for a 3-year maturity instrument and increases by 0.5% for each additional year to maturity
Current debt instruments issued by Akita is only a Php1,000,000 debt instrument with a 5 year tenor issued last year carrying a 7% coupon
Other than the debt instrument issued, Akita also paid back shareholders at a Php8.00 dividend per share this year based on its Php10.0 earnings per share
Book value per share of equity instruments is currently at Php15.00
How much is the growth rate of Akita?
Q14. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
What is the equity risk premium of Little Lemon?
Q15. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
The following summarizes the free cash flows for Little Lemon:
Year 1 - Php200,000
Year 2 - Php300,000
Year 3 - Php400,000
Year 4 - Php600,000
Year 5 - Php1,000,000
Little Lemon with cease operations after year 5
What is the enterprise value of Little Lemon assuming weighted average cost of debt is at 7.25% and tax rate is at 30%? Make sure to use WACC rounded to the second decimal point.
Q16. Alexa Co. is the value of its equity given the following information:
Government risk-free rates today stands at 4.5%
Alexa is expected to declare dividends amounting to Php10.00 next year
Dividends are expected to grow at 20% per year until year 5 and stabilizes at 4% beginning year 6 onwards
Beta is currently estimated at 2.0
Equity risk premium is estimated at 4%
How much is the terminal value of the dividends at year 5?
Q17. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
What is the fair value of the 5-year maturity bond?
Q18. Akita is trying to estimate the value of its business given the following information:
Government securities generates a yield of 4.5%
Akita, being a relatively mature business was able to determine its credit spread to be at 2.5% for a 3-year maturity instrument and increases by 0.5% for each additional year to maturity
Current debt instruments issued by Akita is only a Php1,000,000 debt instrument with a 5 year tenor issued last year carrying a 7% coupon
Other than the debt instrument issued, Akita also paid back shareholders at a Php8.00 dividend per share this year based on its Php10.0 earnings per share
Book value per share of equity instruments is currently at Php15.00
How much is the dividend yield of Akita assuming that current price per share is Php75.00?
Q19. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
How much is the weighted average cost of debt?
Q20. Little Lemon Co. is identifying the value of its equity using the enterprise value approach as they have never issued dividends to-date because the Company is still at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% with an estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0% coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0% coupon
Considering the current crisis, equity investors generally demand a 3.5% premium over government securities
Little Lemon's estimated beta is at 1.2
What is the fair value of the 3-year maturity bond?