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What is the required return for apple corp

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Reference no: EM132975389

You were given the following data regarding Apple Corp

Total equity = $100,000,000

Total debt = $50,000,000

After tax interest on debt = 6% per annum

Beta = 1.6

Current market price = $10/share

Expected selling price next year = $10.50/share

Expected dividend next year = $0.42/share

You have also found out from the website that the interest rate for Singapore Treasury Bill is 2.5%, and average market return is 7.5%

Question 1: What is the market risk premium?

Question 2: What is the required return for Apple Corp? What is the expected return for Apple Corp? Will you invest in shares of Apple Corp? Why?

Question 3: What is the weighted average cost of capital (WACC) for Apple Corp?

Question 4: Apple Corp has decided to increase its debt to $100,000,00 by taking a loan at after-tax interest rate of 8%. What is the WACC after this change? Should Apple Corp proceed with this change? Why?

Question 5: Apple Corp has decided to proceed with this $50,000,000 loan. Out of this amount, $30,000,000 will be used to pay dividend, and $20,000,000 will be kept in bank as fixed deposit which will earn 3.5% interest while waiting for opportunities to invest in viable projects. Discuss the appropriateness and the implications of its actions.

Reference no: EM132975389

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