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.
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