Sharren is an investment manager. Chelsea is one of her clients. In early 2021, Chelsea came to Sharren and said that she just met with a financial planner who claims to have a superior method for picking undervalued stock. According to the financial planner, the fair value of a stock can be determined by adding NOPAT with the non-cash expenses and dividing the number with the risk-free rate. Chelsea has invested 10% of her portfolio in Prodia stock (PRDA.JK). According to the financial planner, based on her valuation method, PRDA.JK is a bit overvalued. The financial planner then advises Chelsea to move her money and be her client.

The following financial datas for PRDA.JK as of 31 Dec 2020 was as follow:

Sales (in million IDR)                                    : 1,873,375

Cost of revenue (in million IDR)                : 827,152

Gross Profit (in million IDR)                       : 1,046,223

Depreciation Expenses (in million IDR)    : 116,715

Operating profit (in million IDR)               : 301,764

PRDA.JK current stock prices                     : 6,400

Chelsea asks Sharren on her opinion about the valuation method used by the financial planner. Sharren told Chelsea that it is better to use free cash flow method since it is a better value measurement. Sharren then use the two stage free cash flow model and the following assumptions:

a.       EBIT in 2020 (in million IDR)        : 301,764

b.       Sales growth from 2021 – 2025 will be 12.8%

c.       Operating profit margin is expected to be at 16.11% during projection period

d.       Terminal growth starting from 2026 onwards will be 6.2% (from 5.1% long-term gdp growth and 1.1% Indonesia population growth)

e.       PRDA will maintain 3.3% capex to sales during the projection period

The following graph shows Sharren’s fcff projection:

Note : You can calculate a - j

WACC assumptions for PRDA.JK are as follow:

·       Market value of interest-bearing debt as of 31 Dec 2020 is IDR 8,568 million

·       Current stock price is IDR 6,400

·       Shares outstanding is 937.5 million

·       Indonesia 10-year government bond yield is 6.21%

·       Equity market risk premium in Indonesia according to Damodaran is 6.56%

·       Raw Beta is 0.67

·       Adjusted beta will be used to calculate cost of equity

·       Cost of debt is around 10.6%

·       Tax rate is 25%

Using Sharren’s assumption, the cost of capital is closest to……………. (answer in decimals, round to four digits after a decimal)