1. Calculate RCA’s company after-tax WACC, rounded to four decimal places.
2. Calculate the Cleaning Products Division WACC, rounded to four decimal places.
3. What could be deduced about the relative business risk of the Cleaning Products Division compared to other cleaning products firms when the industry equity beta was used to estimate the divisional cost of equity?
4. Calculate the NPV_t=0 of project MAT101 using the appropriate discount rate.
5. Calculate the NPV_t=2, at the end of year 2, for the expansion option of Best Klean.
6. Complete Table 3 fully, in accordance with the given assumptions, to show how the free cash flow in years 1-6 is derived.
7. For Best Klean existing business, calculate the terminal value as of year 5 using the constant-growth discounted cash flow formula.
8. Calculate the present value, as of year 0, of Best Klean existing business? [Show individually the discounted value, as of year 0, of the free cash flow in years 1-5 plus that of the terminal value.]
9. Calculate the value of the option for Best Klean to expand as at year 0.
10. If Best Klean could be sold off for $30 million at the end of year 2, calculate the value of the abandonment option as at year 0.
11. What is the present value of Best Klean with expansion and abandonment all considered?
12. Given RCA’s financial position at 31/12/2015, how would RCA finance the two projects? Name the specific source(s) of finance.
13. In 2015, dividend was increased to 50 cents per share despite a fall in the net trading profit after tax and EPS. Apart from a possible signal of higher future earnings, explain the real reason behind the dividend increase.
14. Given the free cash flow and the dividend payout in 2015, how could RCA afford to repurchase 1 million shares during the financial year 2015. Support your argument with numbers.
15. If the financial results for the year ending 31 December 2015 were to be repeated in future years, should RCA continue to repurchase its shares? Explain and support your argument.
16. If the DRP was to be reinstated, would a 2.5% price discount be too high? Support your decision with calculations.

 

 

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