B_5_Case1.pptx

1 de Jun de 2023
1 de 5

B_5_Case1.pptx

• 1. FROZEN FOOD PRODUCTS: COST OF CAPITAL MAYANK RAJPUT MBA08107 MAYANK SINGH MBA08108 NAMAN JAIN MBA08121 NISHANT KUMAR MBA08130
• 2. Summary of Key Facts and Key Issues MARIA D'SOUZA PLANNED TO EXPAND HER BUSINESS BY INTRODUCING A NEW PRODUCT LINE OF FROZEN FOODS TO DOUBLE THE BUSINESS POTENTIAL OF HER COMPANY ANALYSING THE COST OF CAPITAL,RISKINESS,AND UNLEVERED COST OF EQUITY FOR SIMILAR COMPANIES OPERATING IN THE SAME INDUSTRY LIKE ADVANTA, BRITANNIA ETC. GIVEN RATES IN CASE: Growth rate – 5% Return on the bonds – 8% Risk- free return – 8% Market risk premium – 8% Tax – 30% Cost of debenture – 8%
• 3. ANALYSIS OF KEY FINANCIAL ASPECTS For Advanta- 0.5427 /{1+ (1-0.3)5738.3/3744.2} =0.26 Similarly For Britannia – 0.25 For Glaxo – 0.0959 For Jubilant – 0.9856 For Kwality – 0.15 For Rei – 0.25 For Venky – 0.55 For Zydus – 0.5372 The average of the all this beta =0.3848 Avg unlevered β =0.3848 New levered β =0.3848 * {1+(1 -0.3) *1 /3} =0.47 Levered β =0.47 Cost of Capital Cost of equity =Risk free return +(levered beta * market risk premium) =8 +0.47*8 = 1 1 .76 % Cost of equity =1 1 .76% Cost of debenture =8 (1 -0.3) =5.6 Cost of debenture =5.6
• 4. WACC CALCULATION WACCrate is calculated which is valued at 1 0.22%.This indicate that the company will require to pay 1 0.22% to its investors for their financing.
• 5. Maria is recommended to consider the project if the project investment is not more than \$16512.23 at which the company could expand into new markets without any loss of funds and an NPV of 0. The company is recommended to expand its product line as the expansion could increase the consumer base of the company and could bring potential amount of revenues for the company in the future. The project has a positive NPV at the investment level of less than \$16512.23,it could lead to an increase in the overall firm’s value and could enable the firm to be a strong player in the market with efficient financial metrics.