Capital Asset Pricing Model and Bond Yield

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High Mountain

To:
David Rogers

From: JMSB Analysis Group

Date: December 2009

Group members:
Jun Gao
Jiaqi Yin
Qing Zhang
Antoine Vulcain

Main issues:
Evaluation of two possible products:
1. NPV of two possible products
2. WACC analysis
--CPAM
--Bond yield plus

Recommendation:
Product B(aircraft) will be suggested due to the situation of the company. ---If there are enough funds for the company, product A is also acceptable

Analysis
Summary:
High Mountain as an technology company, now has two possible business opportunities. Product A: GPS transmitter which can be placed to children’s shoes and expensive personal belongings SWOT analysis:

* Strength: 1. Quick producing process
2. no additional equipment required
3. High demand
* Weakness: 1. no salvage value
2. high competition
* Opportunity: 1. big potential market about children daily care 2. acceptable to high-end important personal belongings
* Threat: 1. Information availability legality issues against personal privacy 2. fast development and update requirements.
Product B: unmanned surveillance aircraft for military or government use SWOT analysis:
* Strength: 1. Low risk(government and military involved) 2. Low competition
3. High demand
* Weakness: 1. High capital required
2. Slow product process
* Opportunity: 1. Highly required in military
2. Increase goodwill of the company
* Threat: 1. Limited business area
2. High product quality required(high responsibility for products) 3. Legal issues

Weighted Average Cost of Capital Analysis (WACC):
In this case, we use WACC as the required rate of return to calculate the company’s net present value. The CAPM theory is being used here to find the cost of equity and yield to maturity to be its cost of debt. Cost Of Equity by Capital Asset Pricing...
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