CFA一级百题进阶：企业理财.doc

5. Corporate Finance Q-1. Jurgen Knudsen has been hired to provide industry expertise to Henrik Sandell, CFA, an analyst for a pension plan managing a global large-cap fund internally. Sandell is concerned about one of the fund’s larger holdings, auto parts manufacturer Kruspa AB Kruspa currently operates in 80 countries, with the previous year’s global revenues at €5.6 billion. Recently, Kruspa’s CFO announced plans for expansion into China. Sandell worries that this expansion will change the company’s risk profile and wonders if he should recommend a sale of the position. For the new project, D/E=80/20 Additional information: Equity risk premium, Sweden Risk-free rate of interest, Sweden Industry debt-to-equity ratio Market value of Krista’s debt Market value of Kruspa’s equity Kruspa’s equity beta 4.82% 4.25% 0.3 €900 million €2.4 billion 1.3 Kruspa’s before-tax cost of debt China credit A2 country risk premium Corporate tax rate 9.25% 1.88% 37.5% Sandell would like to use the asset beta of Kruspa as a base in his calculations. The China project’s weighted average cost of capital (WACC) calculated using the equity beta without and with the country risk premium is, respectively: A. 9% and 10%. B. 10% and 9.03%. C. 9.03% and 10.42%. Solution: C. Asset β = Un-levered β= 1.3/(1+[(1—0.375)(€900/€2400)] = 1.053 for prior to China project. Projectβ= 1.053 { 1+ [(1 — 0.375) (€80/€20)] = 1.053 {3.5} = 3.686 for China project. Cost of equity without the country risk premium: r =0.0425 + 3.686 (0.0482) = 22.02% e Cost of equity with the country risk premium: r = 0.0425 + 3.686 (0.0482 + 0.0188) = 28.95% e Weighted average cost of capital without the country risk premium: WACC = [0.80 (0.0925) (1 — 0.375) + [0.20 (0.2202)] = 0.04625 + 0.04404 = 9.03% Weighted average cost of capital with the country risk premium: WACC = [0.80 (0.0925) (1 — 0.375) + [0.20 (0.2895)] = 0.04625 + 0.0579 = 10.42% 1-1