Financial Assignment Solution
Financial Management Report
Student Name: Muhammad Hammad Akhter Khalid Khan (哈马德)
Student ID: I201322025
Study Major: Management Science and Engineering (PhD)
Course Name: Financial Management (Course code: 300.772)
Course Lecturer: Dr. Teng Min
June 25, 2013
Defense Electronics, Inc (DEI) A. Calculate the Project’s initial time 0 cash flow, taking into account all side effects.
The Project’s Initial Cash Flow at time 0 would be as follows:
| $ ‘000 | Cost of Land | 0 | Building Cost | 35,000,000 | Working Capital Requirement | 1,300,000 | Total Cash Flow | 36,300,000 |
B. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use adjustment factor of +2% to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI’s project.
As calculated in the Excel Sheet Working 2,
Cost of Capital | | Amount'000 | Market Weight | Cost | Working of Cost | WACC | Current Capital Structure | Common Stock | 639,000 | 71.05 | 0.1460 | CAPM = Rf + (RM-Rf) = 5% + 1.2(8%) | 10.37 | Preferred Stock | 20,400 | 2.27 | 0.0679 | Kp = Div / PM = (5.5*400000) / (400000*81) | 0.15 | Debt | 240,000 | 26.68 | 0.0460 | YTM Formula | 1.23 | Total | 899,400 | 100 | | | 11.75 | | | | | | | New Capital Structure | Increased in Common Stock | 35,000 | 3.74 | 0.1577 | | 0.59 | Old Common Stock | 639,000 | 68.39 | 0.1460 | | 9.98 | Preferred Stock | 20,400 | 2.18 | 0.0679 | | 0.15 | Debt | 240,000 | 25.68 | 0.0460 | | 1.18 | Total | 934,400 | 100 | | WACC | 11.90 | C. The manufacturing plant has an 8 year tax life and DEI uses straight line
Student Name: Muhammad Hammad Akhter Khalid Khan (哈马德)
Student ID: I201322025
Study Major: Management Science and Engineering (PhD)
Course Name: Financial Management (Course code: 300.772)
Course Lecturer: Dr. Teng Min
June 25, 2013
Defense Electronics, Inc (DEI) A. Calculate the Project’s initial time 0 cash flow, taking into account all side effects.
The Project’s Initial Cash Flow at time 0 would be as follows:
| $ ‘000 | Cost of Land | 0 | Building Cost | 35,000,000 | Working Capital Requirement | 1,300,000 | Total Cash Flow | 36,300,000 |
B. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use adjustment factor of +2% to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI’s project.
As calculated in the Excel Sheet Working 2,
Cost of Capital | | Amount'000 | Market Weight | Cost | Working of Cost | WACC | Current Capital Structure | Common Stock | 639,000 | 71.05 | 0.1460 | CAPM = Rf + (RM-Rf) = 5% + 1.2(8%) | 10.37 | Preferred Stock | 20,400 | 2.27 | 0.0679 | Kp = Div / PM = (5.5*400000) / (400000*81) | 0.15 | Debt | 240,000 | 26.68 | 0.0460 | YTM Formula | 1.23 | Total | 899,400 | 100 | | | 11.75 | | | | | | | New Capital Structure | Increased in Common Stock | 35,000 | 3.74 | 0.1577 | | 0.59 | Old Common Stock | 639,000 | 68.39 | 0.1460 | | 9.98 | Preferred Stock | 20,400 | 2.18 | 0.0679 | | 0.15 | Debt | 240,000 | 25.68 | 0.0460 | | 1.18 | Total | 934,400 | 100 | | WACC | 11.90 | C. The manufacturing plant has an 8 year tax life and DEI uses straight line