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Calculate the Intrinsic Value of Equity

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Reference no: EM132571907

Question - The following ?nancial information is from a valuation of Appeal Limited.

Appeal Limited (NZD m) 2020

Intrinsic Value of the Firm $1,500

Intrinsic Value of Debt $900

Cost of Debt Capital (before taxes) 4%

Equity Beta 1.20

Tax rate 28%

Risk-free rate of return 1%

Market risk premium 10%

REQUIRED - (i) Calculate the 2020 Intrinsic Value of Equity, the Cost of Equity Capital, the Weighted Average Cost of Capital.

(ii) Now assume that Appeal Limited borrowed an additional $100n1 and invested this into the operations (yielding the same risk and return as the existing operations). Brie?y explain (no calculations required) what effect this transaction would have on

the Intrinsic Value of Equity,

the Cost of Equity Capital,

the Weighted Average Cost of Capital.

Reference no: EM132571907

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