1. TAMU Inc. is for sale and there is a price tag of $225,000. Your company, ABC, who is considering the purchase, has a beta of 1.5, the market is expected to have a 20% return and the risk-free rate is 5%. The forecasted free cash flows for the next 4 years for TAMU are 7000 (FCF1), 22000(FCF2), 0(FCF3), and 50000 (FCF4). The company is expected to grow at 4% indefinitely after that. Your company has a debt/equity ratio of 2/3 and the applicable tax rate is 35%. ABC's cost of debt (before taxes) is 8%. What is the cost of equity for ABC Company?
• 35%
• 30%
• 27.5%
• 22.5%
2. Continuing with the information from Q 1, what is ABC's WACC?
• 18.58%
• 19.70%
• 21.41%
• 15.88%
3. Continuing with the information from Q 1, what is the terminal value for TAMUC Inc. after the 4th year (TV4)
• 342,935.53
• 254,769.21
• 269,106.57
• 356,652.95
4. Continuing with the information from Q1, what is the NPV of purchasing TAMU Inc.?
• positive 2,220.43
• negative 2,220.43
• positive 178,490.54