ACR Plc has reported for the financial year. Some results are presented at the t

Question

ACR Plc has reported for the financial year. Some results are presented at the table below. ACR Plc has issued new shares at RUR 10000 million (50 million shares outstanding, trading at RUR 200 per share) and paid long-term debt at RUR 12000 million Fixed assets have increased at RUR 13000 million. Calculate: Free cash flow, free cash flow to equity, Dividend payout ratio. Assuming that various casts weight 44% in total costs, calculate the degree of operational, financial and integral leverage. The unlevered beta for firms is 0.85; the risk-free rate is 7% and the market risk premium is 15%. Estimate the cost of capital for ACR Pic and discuss factors which influence on WACC. Discuss the measures to reduce the weighted average capital cost (WACC).

Explanation / Answer

A. Statement showing calculation of Free cash flows

Free cash flows to equity = 11800/10000 = 1.18

(C)

Ke = 7% + 0.85x15%

= 19.75%

Kd = 4000/12000 x (1-0.20) = 26.67%

WACC = 10000/22000 x 19.75% + 12000/22000 x 26.67%

= 23.52%

Sales 60000 Less:Total cost 44000 Less: Interest Expenses 4000 CFBT 12000 Less: Tax 2400 Add: Tax savings on depreciation 2200 CFAT 11800

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