You have joined Zurich Pvt. Ltd as a Finance manager. You are given the following
information:
Zurich Pvt
Ltd. is a diversified manufacturing firm dealing with electrical appliances. In 2012,
the firm reported an operating income of Rs. 857.60 million and faced a tax rate of 35% on
income. The firm had a book value of equity is Rs. 4068.3 million and book val
ue of debt of
Rs.1567.83 million at the end of 2011.The management of the firm is expecting a stable
growth at a rate of 5% annually.
You are aware that the risk free rate is 9% and the company operates in a risk premium of
7.5%. You have been informed t
hat the beta for the company has averaged around 1.2. At the
same time the after tax cost of debt is 11%.