Star Plc is a coffee machines producer. The Star's Plc common stock has a beta of 0.8. The Treasury bill rate is currently 1%, and the market risk premium is estimated at 8%. The book and market...

Extracted text: Star Plc is a coffee machines producer. The Star's Plc common stock has a beta of 0.8. The Treasury bill rate is currently 1%, and the market risk premium is estimated at 8%. The book and market values of company's equity are 9,000,000$ (book) and 12,000,000$ (market) respectively. Star's Plc debt amounts to 5,000,000$. The interest rate on debt is 6%. Assume that market value of debt is equal to its book value. The corporation tax rate is 30%. a. What is the company's weighted average cost of capital (WACC)? b. Star Plc is looking into undertaking a new project which has an internal rate of return of 12% and has similar characteristics to the projects currently undertaken by company, should the company accept the project? Briefly justify your answer. c. How would your answer to the part b) change if the potential project has a risk that is significantly different from the risk of the projects currently undertaken by the company? Briefly explain. d. The company Star Plc is evaluating a new venture related to the manufacturing of the buses. This project is forecasted to generate next year an operating cash flow (depreciation plus profit after tax) of $20 million. Thereafter, operating cash flows are forecast to grow in perpetuity by 3% a year. In addition, an investment in assets will be required before the start of the project of $400 million. WACC of Star Plc is as calculated in part a). WACC of the firms in the automotive industry is estimated to be 9.66%. o What discount rate should be used for evaluating this new venture? Why have you chosen this discount rate? Briefly explain. o What is the total value of this venture? o Is it worth undertaking this new venture? Briefly explain your answer.