Advanced Financial Management

Individual Assignment

3/20/2017

HOA SEN GROUP

Full name: Lo Tran Ngoc Thao – Class 39K16-CLC

Lecturer: Assoc. Prof. Truong Hong Trinh
 Advanced Financial Management
Lo Tran Ngoc Thao – 39K16-CLC

Contents
I) General Introduction ............................................................................................................. 2
II) Financial Statements .......................................................................................................... 2
1) Balance sheet .................................................................................................................... 2
2) Income statement.............................................................................................................. 4
3) Cash flow statement ......................................................................................................... 5
III) Corporate valuation ........................................................................................................... 7
1) Value of Operations ......................................................................................................... 7
2) Weighted average cost of capital (WACC) ...................................................................... 7
3) Free cash flow (FCF) in 2015 .......................................................................................... 8
4) The Growth Model ........................................................................................................... 9
IV) Capital budgeting ............................................................................................................... 9
1) Operating budgeting ....................................................................................................... 10
2) Capital budgeting when company has an assuming project ........................................... 11
V) Optimal capital structure ................................................................................................ 14
1) Cost of Equity vs. Leverage ........................................................................................... 16
2) WACC vs. Leverage ...................................................................................................... 16
3) Corporate value vs. Leverage ......................................................................................... 16
4) Debt and Stock Value vs. Leverage ............................................................................... 17
5) Price per Share vs. Leverage .......................................................................................... 17
6) Optimal capital structure ................................................................................................ 18

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I) General Introduction
HoaSen Group (‘the Company”) and its subsidiaries (together “the Group”) were
established in accordance with the Business Registration Certificate (“BRC”) No. 3700381324
issued by the Department of Planing and Investment of Binh Duong Province on August 8th,
2001. Starting from a steel sheet retail store, HoaSen Group (ticker symbol: HSG) is now known
as the leading steel sheet enterprise in Viet Nam and South East Asia. The Company’s shares
were listed on Ho Chi Minh City Stock Exchange in accordance with Decision No. 117/QD-
SGDHCM dated 5 November 2008.
Shareholder structure on November 25th, 2015
No. Shareholder Owning Owning
15,96%
volume rate 39,86%
1 The Board of Directors 16,089,960 15.96%
2 Domestic shareholders 44,525,873 44.18%
 Domestic individuals 16,680,335 16.55% 44,18%
 Domestic organizations 27,845,538 27.63% The Board of Directors
3 Foreign shareholders 40,174,957 39.86%
Domestic shareholders
Total 100,790,790 100%
Foreign shareholders

Since the day of establishment with only VND 30 billion of initial charter capital and 22
employees, up to now, HoaSen Group has become the powerful steel sheet company in South
East Asia with VND 1,300 billion of charter capital and nearly 6,000 employees. Among them,
there are young managers with the age from 23 to 35, which creates dynamic in the outstanding
development of HoaSen Group.

II) Financial Statements

1) Balance sheet (Unit: million VND)

BALANCE SHEET September, 30th

ASSETS 2015 2014 2013
VND VND VND
A. CURRENT ASSETS 5,169,207 6,399,612 4,214,833
I. Cash and cash equivalents 276,693 155,963 177,313
1. Cash 276,553 139,263 177,313
2. Cash equivalents 140 16,700 -
II. Current account receivables 755,197 823,122 748,159
1. Trade receivables 463,585 639,992 548,363
2. Advances to suppliers 167,829 79,368 187,575
3. Other receivables 128,763 106,945 15,225

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4. Provision for doubtful (4,980) (3,183) (3,004)

III. Inventories 3,543,825 4,746,912 3,019,573
1. Inventories 3,556,894 4,747,945 3,020,464
2. Provision for obsolete (13,0692) (1,033) (891)
inventories
IV. Other current assets 593,492 673,615 269,788
1. Short-term prepaid 70,777 63,447 79,882
expenses
2. Value-added tax deductible 505,939 605,809 169,584
3. Tax and other receivables - 107 4
from the State
4. Other current assets 16,776 4,252 20,318
B. NON-CURRENT ASSETS 4,271,407 3,806,028 2,927,338
I. Long-term receivable 25,000 - -
1. Other long-term receivable 25,000 - -
II. Fixed assets 4,034,359 3,654,010 2,789,680
1. Tangible fixed assets 3,403,034 3,189,284 2,235,720
Cost 5,246,749 4,589,466 3,304,810
Accumulated depreciation (1,843,715) (1,400,182) (1,069,090)
2. Finance lease assets 225,652 165,182 122,417
Cost 283,931 197,948 141,198
Accumulated depreciation (58,279) (32,766) (18,781)
3. Intangible assets 294,659 233,117 234,454
Cost 320,751 255,736 253,522
Accumulated amortisation (26,092) (22,619) (19,068)
4. Construction in progress 111,014 66,427 197,089
III. Long-term investments 38,353 45,924 59,456
1. Investments in an associate 33,986 37,284 44,456
2. Other long-term 4,367 8,640 15,000
investment
IV. Other long-term assets 173,695 106,094 78,202

1. Long-term prepaid 110,639 70,471 57,767

expenses

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2. Deferred tax assets 59,470 31,208 16,019

3. Other long-term assets 3,586 4,415 4,416
TOTAL ASSETS 9,440,614 10,205,640 7,142,171
RESOURCES
A. LIABILITIES 6,529,892 7,826,443 4,931,735
I. Current liabilities 5,554,946 6,867,040 4,338,668
1. Short-term loans and debts 4,521,419 4,756,011 2,814
2. Trade payables 626,270 1,885,979 1,317,685
3. Advances from customers 134,062 61,287 73,221
4. Statutory obligations 71,264 47,194 51,640
5. Payable to employees 40,673 41,256 38,337
6. Accrued expenses 104,041 42,578 22,393
7. Other payables 48,854 23,487 16,514
8. Bonus and welfare fund 8,363 9,248 4,464
II. Non-current liabilities 974,946 959,403 593,067
1. Long-term loans and debts 969,894 953,821 588,027
2. Provision for severance 5,052 5,582 5,040
allowance
B. OWNERS’ EQUITY 2,910,722 2,379,197 2,210,436
I. Capital 2,910,722 2,379,197 2,210,436
1. Issued share capital 1,007,908 1,007,908 1,007,908
2. Share premium 487,291 451,543 451,543
3. Treasury shares (52,114) (81,039) (81,036)
4. Financial reserve fund 8,525 8,525 8,526
5. Other funds belonging to 6,605 13,278 2,008
owners’ equity
6. Undistributed earnings 1,452,507 978,982 821,487
TOTAL LIABILITIES AND 9,440,614 10,205,640 7,142,171
OWNERS’ EQUITY
2) Income statement
ITEMS 2015 2014 2013
1. Revenues from sale of goods and 17,469,895 15,005,075 11,772,644
rendering of services

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2. Less deductions (23,023) (14,714) (12,745)

3. Net revenues from sale of goods 17,446,872 14,990,361 11,759,899
and rendering of services
4. Costs of goods sold and services (14,869,355) (13,240,125) (10,052,386)
rendered
5. Gross profit from sale of goods 2,577,517 1,750,236 1,707,513
and rendering of services
6. Finance income 31,595 30,491 39,687
7. Finance expenses (424,656) (256,363) (246,585)
In which: Interest expenses (224,013) (183,559) (167,862)
8. Selling expenses (864,211) (672,775) (491,3467)
9. General and administrative (511,798) (393,176) (350,540)
expenses
10. Operating profit 808,447 458,413 658,728
11. Other income 64,879 96,439 37,178
12. Other expenses (41,011) (31,463) (16,909)
13. Other profit 23,868 64,976 20,269
14. Profit before tax 832,315 523,389 678,997
15. Current corporate income tax (207,704) (128,235) (106,637)
expense
16. Deferred income tax benefit 28,263 15,188 8,479
17. Net profit after tax 652,874 410,342 580,839
18. Weighted average number of 125,298,205 125,207,027 97,766,865
ordinary shares in issue (shares)
19. Earnings per share (VND/share)
- Basic earnings per share 5,211 3,277 5,941
- Diluted earnings per share 5,211 3,277 5,941
3) Cash flow statement
ITEMS 2015 2014 2013
I. CASH FLOWS FROM
OPERATING ACTIVITIES
Profit before tax 832,315 523,389 678,997
Adjustments for:
000000Depreciation and amortization 481,865 353,993 290,580
Provisions 24,628 7,493 566

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Unrealized foreign exchange losses 39,200 8,461 5,952

(Profits) losses from investing activities (1,831) 2,131 (2,777)
Interest expense 224,013 183,559 167,862
Operating profit before changes in 1,600,190 1,079,026 1,141,180
working capital
Decrease/ (increase) in receivables 70,086 (501,432) 22,2789
Decrease/ (increase) in inventories 1,191,052 (1,727,480) (1,478,856)
Increase/ (decrease) in payables (1,092,413) 561,129 863,895
(Increase)/ decrease in prepaid (26,873) 9,913 (30,436)
expenses
Interest expense paid (222,445) (182,868) (169,528)
Corporate income tax paid (196,935) (109,496) (101,211)
Other cash outflows for operating (42,437) (44,168) (26,422)
activities
Net cash flows from (used in) operating 1,280,225 (915,376) 220,900
activities
II. CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of fixed assets (735,065) (1,192,559) (492,271)
Proceeds from disposals of fixed assets 27,911 20,653 7,248
Payments for investments in other (7,496) - -
entities
Proceeds from sale of investments in 4,273 6,360 -
other entities
Interest received 3,680 2,020 5,940
Net cash flows used in investing (706,697) (1,163,526) (479,083)
activities
III.CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of shares 64,722 - -
Capital redemption (49) (3) (24,319)
Drawdown of borrowings 13,314,829 12,580,816 9,167,945
Repayment of borrowings (13,606,184) (10,295,026) (8,408,050)
Finance lease payments (71,831) (33,198) (24,793)
Dividends paid (144,059) (192,218) (337,811)
Net cash flows (used in) from financing (442,572) 2,060,371 372,972
activities
Net increase/ (decrease) in cash and cash 130,956 (18,531) 114,789
equivalents

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Cash and cash equivalents at beginning 155,963 177,313 67,432

of year
Effect of foreign exchange differences (10,226) (2,819) (4,908)
Cash and cash equivalents at end of year 276,693 155,963 177,313

III) Corporate valuation

1) Value of Operations
VOp = Total corporate value of firm – Marketable securities
= Market value of share + debt + preferred stock – financial investments
In which: Market value of share = Weighted average number of ordinary shares in issue *
Market price of share

VOpin 2015 (Unit: million VND)

Outstanding shares(millions of share) 97.9
Market price of share (VND) 19,210
Debt 6,529,892
Preferred stock -
Financial investments 38,353
- Short-term -
- Long-term 38,353
Value of OperationsVOp(VND) 8,372,198
2) Weighted average cost of capital (WACC)
WACC = Wd*Rd*(1-T) + We*Re = D/V*Rd*(1-T) + E/V*Re
Where:
Re = cost of equity
Rd = cost of debt
E = the firm’s equity
D = market value of the firm’s debt
V=E+D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
T = corporate income tax rate
In addition, RS (no preferred stock) = Rf + (Rm – Rf)* β
Where: Rf = risk-free interest rate

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Rm = market interest rate

β = the volatility of firm’s stock correlated with market
Using CAPM model to calculate RS
RS = Rf + (Rm – Rf)* β
Where: Rf(The interest rate of treasury bonds that has maturity in 2015) = 9.36%
Rm (Average rate of return VN-Index in a period of 2001-2014) = 17.23%
Risk premium RPm= Rm – Rf = 7.87%
β = 1.3
 Re = RS = Rf + RPm* β = 9.36% + 7.87%*1.3 = 20%

Debt (D) 6,529,892

Owners’ equity (E) 2,910,722
Total liabilities and owners’ equity 9,440,614
Wd 69.17%
We 30.83%
Re = Rs = Rf+ (RPm) x β 20%
Rd 9.5%
T 22%
WACC = Wd*Rd*(1-T) + We*Re 11.17%

3) Free cash flow (FCF) in 2015

FCF 2015 = NOPAT – Net investment in assets – Difference between NOWC 2015 and NOWC
2014
Where: NOWC = Current assets – Current liabilities
NOPAT = Operating profit * (1-T) 630,589
Operating profit 808,447
Corporate income tax rate 22%
Net investment in assets = Fixed assets in 2015 – Fixed assets in 2014 380,349
+ Fixed assets in 2015 4,034,359
+ Fixed assets in 2014 3,654,010
Difference between NOWC 2015 and NOWC 2014 = NOWC 2015 – 81,689
NOWC 2014
+ NOWC 2015 -385,739
+ NOWC 2014 -467,428

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FCF 2015 168,551

4) The Growth Model
Find the value of operations by discounting the free cash flows at the cost of capital.
Placing 2015 is the base year, FCF0 = FCF2015 = 168,551
Assume that FCF has supernormal growth rate of 20% in next five years.
Therefore, free cash flows (FCF) in 2016, 2017, 2018, 2019 and 2020:
• FCF1 = 202,261
• FCF2 = 242,713
• FCF3 = 291,256
• FCF4 = 349,507
• FCF5 = 419,409
Then, FCF grows at a long-run constant rate of g after year5.
The weighted average cost of capital, WACC, is 11.17%
𝐹𝐹𝐹𝐹𝐹𝐹5∗(1+𝑔𝑔) 200,744,874,996 ∗(1+𝑔𝑔)
VOpat 5 =
𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 −𝑔𝑔
= 9.83%−𝑔𝑔

2015 2016 2017 2018 2019 2020 2021

WACC= 11.17%

g1 = 20% g2 =?
202,261 242,713 291,256 349,507 419,409 ?

181,939

196,390

211,988

228,826
419,409 ∗(1+𝑔𝑔)
247,001 VOpat 5 =
11.17%−𝑔𝑔
419,409 ∗ (1 + 𝑔𝑔)
(11.17% − 𝑔𝑔) ∗ (1 + 11.17%)^5
419,409∗(1+𝑔𝑔)
VOp= + 181,939+196,390+ 211,988 + 228,826 + 247,001 = 8,372,198
(11.17%−𝑔𝑔)∗(1+11.17%)^5
 g = 7.53%

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IV) Capital budgeting

1) Operating budgeting
Creating the operating budgeting table and FCF in next 5 years with a growth rate of 20%

ITEMS 2015 2016 2017 2018 2019 2020

Net revenues from
sale of goods and
17,446,872 20,936,246 25,123,496 30,148,195 36,177,834 43,413,401
rendering of services
Costs of goods sold
and services rendered (14,869,355) (17,843,226) (21,411,871) (25,694,245) (30,833,095) (36,999,713)
Gross profit from sale
of goods and
2,577,517 3,093,020 3,711,624 4,453,949 5,344,739 6,413,687
rendering of services
Selling expenses
(864,211) (1,037,053) (1,244,464) (1,493,357) (1,792,028) (2,150,434)
General and
administrative expenses (511,798) (614,158) (736,989) (884,387) (1,061,264) (1,273,517)
Operating profit
1,201,508 1,441,810 1,730,172 2,076,206 2,491,447 2,989,736
Other income
64,879 77,855 93,426 112,111 134,533 161,440
Other expenses
(41,011) (49,213) (59,056) (70,867) (85,040) (102,048)
Other profit
23,868 28,642 34,370 41,244 49,493 59,391
Profit before tax
1,225,376 1,470,451 1,764,541 2,117,450 2,540,940 3,049,128
Current corporate
income tax expense (207,704) (249,245) (299,094) (358,913) (430,695) (516,834)
Deferred income tax
benefit 28,263 33,916 40,699 48,838 58,606 70,327
Net profit after tax
1,045,935 1,255,122 1,506,146 1,807,376 2,168,851 2,602,621
Difference of fixed
assets 380,349 456,419 547,703 657,243 788,692 946,430
Difference of NOWC
81,689 98,027 117,632 141,159 169,390 203,268
FCF
475,138 570,166 684,199 821,039 985,247 1,182,296

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2) Capital budgeting when company has an assuming project

Project A (Unit: million VND)
Assume that HoaSen Group considers installing additional equipment to upgrade production
chain to save fuel and reduce oil loss. Where:
• Invoice is 20,000
• Shipping cost is 10,000
• Installing cost is 10,000
• Usage years is 5 years
• No liquidation value
New chain will generate revenue of 65,000VND with the cost of 52,000 in first year and revenue
growth rate is 20%
In order to use new chain, the company needs to net working capital that accounts for 12% of
revenue.
Tax rate is 22%, WACC of project is the same as WACC of company.
HSG uses depreciation by straight-line method
Depreciation per year = (20,000+ 10,000+ 10,000)/5 = 8,000 VND
Price of equipment 20,000
Shipping cost 10,000
Installing cost 10,000
Usage years 5
Liquidation 0
Corporate income tax rate 22%
WACC 11.17%
Revenue in year 1 65,000
VRC in year 1 52,000
Revenue growth rate 20%
%NWC/Revenue 12%
Depreciation per year 8,000

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Capital budget planning in 5 years

Items 2015 2016 2017 2018 2019 2020
Initial CF
(40,000)
Investment
(40,000)
Revenue
65,000 78,000 93,600 112,320 134,784
Operating
expenses 52,000 62,400 74,880 89,856 107,827
Gross profit
13,000 15,600 18,720 22,464 26,957
Deprecation
8,000 8,000 8,000 8,000 8,000
EBT
5,000 7,600 10,720 14,464 18,957
Income tax
expense 1,100 1,672 2,358 3,182 4,170
EAT
3,900 5,928 8,362 11,282 14,786
Deprecation
8,000 8,000 8,000 8,000 8,000
Operating
CF 11,900 13,928 16,362 19,282 22,786
Investment in
NOWC 7,800 9,360 11,232 13,478 16,174
CF from
NOWC (7,800) (1,560) (1,872) (2,246) (2,696) 13,478
Net CF
(47,800) 10,340 12,056 14,115 16,586 38,960

𝐶𝐶𝐶𝐶𝐶𝐶
NPV = ∑5𝑖𝑖=1 – 478,000,000,000 =15,334> 0
(1+9.83%)^𝑖𝑖
Accept this project

5 𝐶𝐶𝐶𝐶𝐶𝐶
If NPV = 0 then NPV =∑𝑖𝑖=1 = 0 IRR = 20.77%
(1+𝐼𝐼𝐼𝐼𝐼𝐼)^𝑖𝑖
FCF of HSG in 5 years after the company has this project

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Items 2015 2016 2017 2018 2019 2020

FCF before project
202,261 242,713 291,256 349,507 419,409
Net CF
(47,800) 10,340 12,056 14,115 16,586 38,960
FCF after project
(47,800) 212,601 254,769 305,371 366,094 458,369
• Free cash flow before project

2015 2016 2017 2018 2019 2020 2021-∞

WACC= 11.17%
g1 = 20% g2 = 7.53%
202,261 242,713 291,256 349,507 419,409

184,939
196,390

211,988

228,826
247,001
7,306,053

VOp =8,372,198

• Cash flow of project

2015 2016 2017 2018 2019 2020 2021-∞

WACC= 11.17%

g1 = 20% g2 = 7.53%
(47,800) 10,340 12,056 14,115 16,586 38,960
9,301
9,755
10,274
10,859
22,945
678,685

NPV = 694,019

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• Free cash flow after project

2015 2016 2017 2018 2019 2020 2021-∞

WACC= 11.17%

g1 = 20% g2= 7.53%

(47,800) 212,601 254,769 305,371 366,094 458,369
191,240
206,145
222,262
239,685
269,946
7,984,739

VOp =9,066,217
VOpbefore project 8,372,198

NPV 694,019

VOpafter project 9,066,217

V) Optimal capital structure

Assume that the firm currently is all-equity financed
• FCF does not affected by capital structure
• 97.9 millionoutstanding shares
• T= 22%, Rf= 9.36%, Rm = 17.23%, bL = 1.3, WACC = 11.17%, RPm= 7.87%
When debt in capital structure increases, financial risks will go up. Therefore, debt ratio will
increase.
Estimate the cost of debt (Rd)
Percent financed 0% 10% 20% 30% 40% 50% 60% 69.17% 70% 80% 90%
with debt, Wd
Rd - 6% 6.5% 7% 8% 9% 9.2% 9.5% 9.8% 10% 12%
Using Hamada’s equation to find beta:
bL = bU [1 + (1 - T)(D/E)]

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Where: bU is the betaof a firm when it has no debt

bL is the beta of a firm when it use Debt/Equity ratio D/E
T is corporate income tax rate
D is debt
E is owners’ equity
The cost of equity for Wd = 69.17%
First, placingbL = 1.3% into the Hamada’ equation to find bU
bL = bU [1 + (1 - T)(D/E)]
1.3= bU[1+ (1- 0.22)(69.17%/30.83%)]
bU= 0.473
Using CAPM to find the cost of equity
Re =RS = Rf+ bL(RPM)
= 9.36% + 1.3(7.87%) = 19.59%
The WACC for Wd= 69.17%
WACC = Wd*Rd*(1-T) + We*Re
= 0.6917(9.5%)(1-0.22) + 0.3083(13.08%) = 11.17%
Corporate Value for Wd= 69.17%
Discounting the free cash flows at the computed WACC into the first model (part 3- page 9) to
find new value of corporate.

2015 2016 2017 2018 2019 2020 2021-∞

WACC= 9.83%

g1 = 20% g2= 7.53%

202,261 242,713 291,256 349,507 419,409

181,946
196,406
212,015
228,864
247,053

7,316,818

VOp =8,383,101

Debt and Equity for Wd = 69.17%

D = Wd V = 0.6917(8,383,101) = 5,798,591
S = V – D = 8,383,101- 5,798,591= 2,584,510
Stock Price for Wd= 69.17%
P = [S + (D – D0)]/ n0
= [2,584,510+ (5,798,591– 0)]/97.9

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= 85,629
Number of Shares Repurchased and Remaining for Wd= 69.17%
# Repurchased = (D – D0) / P
= (5,798,591– 0) / 85,629
= 68
# Remaining = n = S / P
= 2,584,510/ 85,629= 30
These steps are used similarly for other Wd and the results in accordance with each Wd in the
following tables.
1) Cost of Equity vs. Leverage
Wd D/E bL Re = RS
0% 0.00 0.473 13.08%
10% 0.11 0.514 13.40%
20% 0.25 0.565 13.81%
30% 0.43 0.631 14.32%
40% 0.67 0.719 15.01%
50% 1.00 0.841 15.98%
60% 1.50 1.026 17.43%
69.17% 2.24 1.300 19.59%
70% 2.33 1.333 19.85%
80% 4.00 1.948 24.69%
90% 9.00 3.791 39.20%
2) WACC vs. Leverage
Wd Rd Re = Rs WACC
0% 0.00% 13.08% 13.08%
10% 6.00% 13.40% 12.53%
20% 6.50% 13.81% 12.06%
30% 7.00% 14.32% 11.66%
40% 8.00% 15.01% 11.50%
50% 9.00% 15.98% 11.50%
60% 9.20% 17.43% 11.28%
69.17% 9.50% 19.59% 11.17%
70% 9.80% 19.85% 11.31%
80% 10.00% 24.69% 11.18%
90% 12.00% 39.20% 12.34%
3) Corporate value vs. Leverage
Wd WACC Corp. Value
0% 13.08% 5,408,937

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10% 12.53% 6,028,953

20% 12.06% 6,681,608
30% 11.66% 7,340,900
40% 11.50% 7,645,891
50% 11.50% 7,653,537
60% 11.28% 8,121,850
69.17% 11.17% 8,383,101
70% 11.31% 8,061,230
80% 11.18% 8,354,292
90% 12.34% 6,271,950
4) Debt and Stock Value vs. Leverage
Wd Debt, D Stock Value, S
0% 0 5,408,937
10% 602,895 5,426,058
20% 1,336,322 5,345,286
30% 2,202,270 5,138,630
40% 3,058,356 4,587,535
50% 3,826,768 3,826,768
60% 4,873,110 3,248,740
69.17% 5,798,591 2,584,510
70% 5,642,861 2,418,369
80% 6,683,433 1,670,858
90% 5,644,755 627,195
5) Price per Share vs. Leverage
Wd P Number of Number of shares
shares remaining
repurchased
0% 55,250 0 98
10% 61,583 10 88
20% 68,249 20 78
30% 74,984 29 69
40% 78,099 39 59
50% 78,177 49 49
60% 82,961 59 39
69.17% 85,629 68 30
70% 82,341 69 29
80% 85,335 78 20
90% 64,065 88 10

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6) Optimal capital structure

• Wd = 70% gives:
 Highest corporate value
 Lowest WACC
 Highest stock price per share
• But Wd= 60% is close. Optimal range is pretty flat.
• The value of corporation is computed in part 5 (8,383,101) is higher as opposed to one in
part 3 (8,372,198). This shows in this case there is an increase in the value of corporation
with optimal capital structure. Thus, the corporation should do capital investment via
buying stockthen selling stock when they are profitable.

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