#CFA 1级Reading 36 教材Practice problem的第22题#

BorisDuarte, CFA, covers initial public offerings for Zellweger Analytics, an independent research firm specializing in global small-cap equities. He has been asked to evaluate the upcoming new issue of TagOn, a US-based business intelligence software company. The industry has grown at 26 percent per year for the previous three years. Large companies dominate the market, but sizable “pure-play” companies such as Relevant, Ltd., ABJ, Inc., and Opus Software Pvt.Ltd also compete. Each of these competitors is domiciled in a different country, but they all have shares of stock that trade on the US NASDAQ. The debt ratio of the industry has risen slightly in recent years.

Duarte uses the information from the preliminary prospectus for TagOn’s initial offering. The company intends to issue 1 million new shares. In hisconversation with the investment bankers for the deal, he concludes the offering price will be between $7 and $12. The current capital structure of TagOn consists of a $2.4 million five-year non-callable bond issue and 1million common shares. Other information that Duarte has gathered:

22.  The marginal cost of capital for TagOn, based on an average asset beta of 2.27 for the industry and assuming that new stock can be issued at $8 per share, is closest to:

A.      20.5 percent.

B.      21.0 percent.

C.      21.5 percent.

答案如下：

C is correct.

For debt: FV= 2,400,000; PV = 2,156,000; n = 10; PMT = 150,000

Solve for i.i = 0.07748. YTM = 15.5%

Before-taxcost of debt = 15.5%

Market valueof equity = 1 million shares outstanding + 1 million newly issued shares = 2million shares at $8 = $16 million

Total marketcapitalization = $2.156 million + $16 million = $18.156 million

Levered beta= 2.27 {1 + [(1 − 0.23)(2.156/16)]} = 2.27 (1.1038) = 2.5055

Cost ofequity = 0.0525 + 2.5055 (0.07) = 0.2279 or 22.79%

Debt weight =$2.156/$18.156 = 0.1187

Equity weight= $16/$18.156 = 0.8813

TagOn’s MCC     = [(0.1187)(0.155)(1 − 0.23)] + [(0.8813)(0.2279)]

= 0.01417 +0.20083

= 0.2150 or21.50%

疑问：

Marginal cost of capital is the cost of the last new dollar of capital a firm raises.这里只raise equity，为什么要加cost of debt？weight of equity不应该是1吗？

谢谢！