Gangnam Corp is a South Korea-based music entertainment company, but is interested in launching a new line of clothes and sunglasses under the brand name PSY in hopes of becoming an international phenomenon. They have surveyed the clothing industry and have identified Style Inc. as the closest pure-play firm for the proposed PSY division. Gangnam Corp has a beta of 1.45 and is 8% equity-financed. Style Inc. has an equity beta of 1.35 and a debt-equity ratio of 2.34. The risk-free rate of return is 3.8 percent and the market risk premium is 3.8 percent. What cost of equity should Gangnam Corp use for its PSY apparel division? Assume taxes are 35% and that Gangnam Corp will maintain its current capital structure for its new apparel division
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- Gangnam Corp is a South Korea -based music entertainment company, but is interested in launching a new line of clothes and sunglasses under the brand name PSY in hopes of becoming an international phenomenon. They have surveyed the clothing industry and have identified Style Inc. as the closest pure - play firm for the proposed PSY division. Gangnam Corp has a beta of 1.45 and is 64% equity-financed. Style Inc. has an equity beta of 2.24 and a debt-equity ratio of 0.14. The risk-free rate of return is 1.8 percent and the market risk premium is 6.1 percent. What cost of equity should Gangnam Corp use for its PSY apparel division? Assume taxes are 39% and that Gangnam Corp will maintain its current capital structure for its new apparel division.Handley Ltd is a firm that up until now has been involved in the manufacturing of plastic bottles used by milk distributors. It is considering pivoting towards producing wifi-enabled lighting systems and wants your help to estimate its after-tax weighted average cost of capital in order to assess the viability of this strategy.Handley Ltd currently have a debt-to-equity ratio of 0.6. They also have two sources of debt, commercial bills and long-term bonds, which, in aggregate, are each equivalent in market value to each other. The current yield on the commercial bills is 3.7% p.a. and the yield on the bonds is 4.1% p.a. The risk-free interest rate is estimated to be 3% p.a., the market risk premium 5.5% p.a. and the current beta of Handley Ltd shares is 0.7. The relevant corporate tax rate is 30%. 1. Estimate the after-tax WACC of Handley Ltd (in percentage terms to two decimal places e.g. 10.03%) 2. In no more than 3 lines explain whether it is appropriate for the company to use its…In addition to footwear, Kenneth Cole Productions designs and sells handbags, apparel, and other accessories. You decide, therefore, to consider comparables for KCP outside the footwear industry. You also know the following about KCP: it has sales of $518 million, EBITDA of $55.6 million, excess cash of $100 million, $3 million of debt, EPS of $1.65, book value of equity of $12.05 per share, and 21 million shares outstanding. a. Suppose that Fossil, Inc., has an enterprise value to EBITDA multiple of 11.51 and a P/E multiple of 16.01. What share price would you estimate for KCP using each of these multiples, based on the data for KCP? b. Suppose that Tommy Hilfiger Corporation has an enterprise value to EBITDA multiple of 8.46 and a P/E multiple of 17.86. What share price would you estimate for KCP using each of these multiples based on the data for KCP? a. Suppose that Fossil, Inc., has an enterprise value to EBITDA multiple of 11.51 and a P/E multiple of 16.01. What share price would…
- Handley Ltd is a firm that up until now has been involved in the manufacturing of plastic bottles used by milk distributors. It is considering pivoting towards producing wifi-enabled lighting systems and wants your help to estimate its after-tax weighted average cost of capital in order to assess the viability of this strategy. Handley Ltd currently have a debt-to-equity ratio of 0.6. They also have two sources of debt, commercial bills and long-term bonds, which, in aggregate, are each equivalent in market value to each other. The current yield on the commercial bills is 3.7% p.a. and the yield on the bonds is 4.1% p.a. The risk-free interest rate is estimated to be 3% p.a., the market risk premium 5.5% p.a. and the current beta of Handley Ltd shares is 0.7. The relevant corporate tax rate is 30%. - Estimate the after-tax WACC of Handley Ltd (in percentage terms to two decimal places e.g. 10.03%) - In no more than 3 lines explain whether it is appropriate for the company to use its…Lana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?Organic Ltd: is a company engaged in production of organic foods. Presently, it sells its products through indirect channels of distribution. But, considering the sudden surge in the demand for organic products, the company is now inclined to start its online portal for direct marketing. The financial managers of the company are planning to use debt to take advantage of trading on equity. In order to finance its expansion plans, it is planning to ‘raise a debt capital of Rs. 40 lakhs through a loan @ 10% from an industrial bank. The present capital base of the company comprises of Rs. 10 lakh equity shares of Rs. 15 each. The rate of tax is 35%. In the context of the above case: 1. What are the two conditions necessary for taking advantage of trading on equity? 2. Assuming the expected rate of return on investment to be same as it was for the current year i.e., 15%, do you think the financial managers will be able to meet their goal. Show your workings clearly.
- Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $120 million and a YTM of 6.8 percent. The company’s market capitalization is $260 million and the required return on equity is 15 percent. Joe’s currently has debt outstanding with a market value of $25.5 million. The EBIT for Joe’s next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 25 percent. a.What is the maximum share price that Happy Times should be willing to pay for…Sinaloa Appliance, Incorporated, a private firm that manufactures home appliances, has hired you to estimate the company's beta. You have obtained the following equity betas for publicly traded firms that also manufacture home appliances. Pirm Robot Middleby's National Presto Nevell Brands Whirlpool Beta 0.94 1.89 Asset beta 0.14 1.09 1.79 Debt (5 millions) 50 762 D 11,943 4,520 Market Value of Equity 3,240 7,510 849 26,770 14,260 a. Estimate an asset beta for Sinaloa Appliance. Note: Round intermediate calculations and final answer to 3 decimal places.Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $150 million and a YTM of 4.9 percent. The company's market capitalization is $390 million and the required return on equity is 10 percent. Joe's currently has debt outstanding with a market value of $31 million. The EBIT for Joe's next year is projected to be $12 million. EBIT is expected to grow at 9 percent per year for the next five years before slowing to 2 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 8 percent, 14 percent, and 7 percent, respectively. Joe's has 1.9 million shares outstanding and the tax rate for both companies is 21 percent. a. What is the maximum share price that Happy Times should be willing to pay for…
- Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $220 million and a YTM of 5.8 percent. The company's market capitalization is $460 million and the required return on equity is 12 percent. Joe's currently has debt outstanding with a market value of $34.5 million. The EBIT for Joe's next year is projected to be $14 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2.25 million shares outstanding and the tax rate for both companies is 23 percent. a. What is the maximum share price that Happy Times should be willing to pay for…Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a. What is the maximum share price that Happy Times should be willing to pay for…Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a.What is the maximum share price that Happy Times should be willing to pay for…