Tesca

1) How much importance should be given to the energy cost situation?

With the population growing in the earth, each person can consume is becoming less because of the limited nature resources. Recently, people are paying more and more attention on the sustainable energy in order to protecting and saving the earth.

The establishment of civilization is supposed to be consuming a lot of energy and nature resources. Human may come back to the unbelievable low- level way of life without energy consuming. The inevitable result of reliance on development of machinery and technology is that energy issue becoming a huge problem. When the energy problem occurred, we resort to the innovative technology to solve the problem.

As a company, providing efficient electronic products is not only for attracting consumer but also for company’s social responsibility. High- performance electronic products can reduce the electronic fee of customers; therefore, consumers may be more willing to buy. Moreover, High- performance electronic products can reduce the CO2 and heat releasing, thus, the global warming issue could be moderated.

2) What is the project’s cost of equity? What is the appropriate discount factor to use for evaluating the refrigerator project?

Before we calculate the project’s cost of equity, we should consider the β that we will use in the calculation. Based on Tesca Company’s business history we have the overall β which is 1.3. Also, based on β analysis we have other information about β of companies in the similar industries. We decided to use the β of our company’s which is 1.3. β can affect the cost of equity and weight average cost of capital, therefore, we should take our company’s β because we will use the similar pattern to gather funds of project’s need.

Cost of equity (Re)

Information we need:

* Treasury notes have a yield to maturity of 6% (Rrf)

* Market premium is 6.5% (Rm)

* Beta is 1.3 (β)

The equation of cost of equity: Re=Rrf +(...