64 points Fin3403 SECOND EXAM Due December 21,2017 The remaining questions are b

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64 points Fin3403 SECOND EXAM Due December 21,2017 The remaining questions are based on the following data for E-O Logistics, a publicly traded company heavily involved in the Supply Chain solutions of many retail and wholesale manufacturers # of shares outstanding: Current share price Market value of outstanding bonds 20,000,000 $34 $250,000,000 Expected return in the market Risk free T-bill rate E-O beta Current YTM on bonds 10.50% 1.30% 1.6 8.45% Marginal tax rate 3496 (8) What is E-O's cost of equity according to CAPM? (4 points) (9) What is E-O's weighted average cost of capital? (8 points) workflow in its cross-dock warehouse in Singapore. This project is forecast to produce incremental Operating Cash Flow of $154,440 each year. Initially, this 4-year project will require a $50,000 increase in net working capital. The company has spent $45,000 on a technical study in order to assess this equipment earlier this year. The equipment required for the project will cost $410,000 and will be depreciated to zero straight-line over five years. The equipment will be sold at the end of the project for $90,000. Management has further determined that the project will require a risk adjustment of 3.5% to WACC given currency and other local practices that are different than its US. business. (10) E-O Logistics management is considering investing in a new fleet of forklifts to improve Lay out the project cash flows and calculate NPV and IRR (use template below). Would you recommend the project? Why? (12 points) Recommendation: IRR = NPV = Why?

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Rf 1.30% Beta 1.6 Expected return 10.50% Cost of Equity =rf+beta*(rm-rf) =1.3%+1.6*(10.5%-1.3%) 16.02% Cost of Debt after tax =8.45%*(1-.34) 5.58% Value Weight Market value of Debt         250,000,000 0.268817 Market value of equity         680,000,000 0.731183 Total         930,000,000                 1 WACC=16.02%*.731183+5.58%*.268817 13.21%

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