Cost of ordinary equity after the capital structure change

Assignment Help Financial Accounting
Reference no: EM131221939

Bula Textiles has an ordinary-share capital structure.

The selected financial data for the company are shown below:

Ordinary shares outstanding = 2,000,000

Ordinary share price= $10 per share

Expected level of EBIT = $5,000,000

Dividend payout ratio = 100%

In answering the following questions, assume that company income is not taxed.

Required:

a) Under the present capital structure, what is the total value of the company?

b) What is the cost of ordinary share capital?

c) Suppose that Bula Textile sells $1 million of long-term debt with an interest rate of 8%. The proceeds are used to retire the ordinary shares. What will be the company’s cost of ordinary equity after the capital structure change?

(i) What will be the dividend per share flowing to the company’s ordinary shareholders?

(ii) By what percentage has the dividend per share changed as a result of the capital-structure change?

(iii) By what percentage has the cost of ordinary equity changed as a result of the capital- structure change?

(iv) What will be the cost of capital after the capital-structure change? Please show your calculation

Reference no: EM131221939

Incremental external rate of return

Based on the discounted payback method tractor A's recovery period (indicate the fraction of a year to one decimal where required - Based on the discounted payback method, tra

Prepare a statement of cash flows for success systems

Prepare a statement of cash flows for Success Systems using the indirect method for the three months ended March 31, 2014. Recall that the owner Adria Lopez contributed $31,

What is ricks distributive share of income-gain and loss

Rick has a $50,000 basis in the RKS General Partnership on January 1 of the current year, and he owns no other investments. He has a 20% capital interest, a 30% profits intere

Defines reportable operating segments

The Coca-Cola Company is organized geographically and defines reportable operating segments as regions of the world. The following information was extracted from Note 19 Opera

What is the company contribution margin ratio

Redo the company's contribution format income statement assuming that the company sells 3,400 units. The following is Arkadia Corporation's contribution format income statemen

Job-order costing variables

On July 1, Job 46 had a beginning balance of $1,235. During July, prime costs added to the job totalled $560. Of that amount, direct materials were three times as much as dire

Projected merchandise purchases

Crush Can pays 40% of merchandise purchases in the month purchased and 60% in the following month. General operating expenses are budgeted to be $62,000 per month of which dep

Prepare a report to the group financial director of sizacom

Evaluate, with reasons, the recognition and measurement of customer acquisition costs; and discuss the current income tax and deferred tax implications of the customer acquisi

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd