Qinetiq plc. makes full body scanners for airport security systems. The Transportation Security Administration (TSA) is...
Qinetiq plc. makes full body scanners for airport security systems. The Transportation Security Administration (TSA) is considering ordering 100 such machines at a total cost of $20 million. To ramp up production for the order Qinetiq is considering building a new factory. To evaluate the new factory project, Qinetiq needs to estimate its cost of capital. Review the following information and answer the questions that follow to help Qinetiq with its analysis.
|
Debt |
Equity |
||
|
Number of bonds outstanding = |
150,000 |
Market price = |
$33 |
|
Face value = |
$1,000 |
Shares outstanding = |
7 million |
|
Maturity = |
2years |
Beta = |
0.97 |
|
Coupons = |
9% paid annually |
Risk-free rate = |
3% |
|
Market price = |
$1,017.37 |
Expected return on market = |
9% |
|
Tax rate = |
38% |
||
a. What is the after-tax cost of debt for Qinetiq bonds?
b.According to the CAPM, what is the required return of Qinetiq shareholders?
c. What is the weighted average cost of capital (WACC) for Qinetiq?
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Qinetiq plc. makes full body scanners for airport security
systems. The Transportation Security Administration (TSA) is...
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