Reference no: EM132039731
Official Ltd is an investment company that is considering expanding their business, and as such, is reviewing their current financing mix and the costs of their sources of finance.
The latest balance sheet for the company shows:
Long-term debt $
Bonds: Par $1,000, annual coupon 6% p.a., 4 years to maturity 10,000,000
Equity
Preference shares (100,000 shares outstanding, $3.24 cents per share dividend) 2,000,000
Ordinary shares (1,000,000 shares issued) 8,000,000
Total 20,000,000
The company’s bank has advised that the interest rate on any new debt finance provided for the projects would be 9.45% p.a.
The company’s preference shares currently sell for $22.45, while existing ordinary shares sell for $7.20 each and management has disclosed that it expects to pay a dividend of 45 cents per share at the end of the next year.
Additional information provided by the company include their beta of 0.75, the risk free rate of 3% per annum, the market rate on a diversified portfolio of 10% per annum, while the company’s tax rate is 30%.
(a) Using current market and expected (calculated) values, determine the market value proportions of debt, preference shares and ordinary equity comprising Official Ltd’s capital structure.
(b) Calculate the after-tax costs of capital for each source of finance.
(c) Determine the after-tax weighted average cost of capital for the company.
(d) Under what conditions can the firm’s weighted average cost of capital be used for assessing new projects?
|
Calculate cash flows from operating activities
: Cash provided from sale of equipment purchased in c. above, $23,500. Required: Calculate cash flows from operating activities
|
|
What was the variance of yasmin returns over this period
: What was the standard deviation of Yasmin’s returns over this period? What was the variance of Yasmin’s returns over this period?
|
|
What is the maximum rate at which it would be taxed
: Ted Thomas, a single taxpayer with no dependents, If his AGI were $25,000, what is the maximum rate at which it would be taxed
|
|
Explain which work specialization area you would prefer
: Explain which work specialization area you would prefer to work for and provide details to support your answer.
|
|
After-tax weighted average cost of capital for the company
: Calculate the after-tax costs of capital for each source of finance. Determine the after-tax weighted average cost of capital for the company.
|
|
Prepare the journal entries for jaycie phelps inc
: Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski
|
|
Would you recommend any changes for your new target market
: Value chain. Referring back to your marketing channel diagram, discuss what each member of the value chain does to bring value to the consumer.
|
|
Record transactions for the purchase and sale of inventory
: Shankar Company uses a perpetual system to record inventory transactions. Record transactions for the purchase and sale of inventory
|
|
Calculate cost of goods sold
: At the beginning of 2012, Bryers Incorporated reports inventory of $7,200. Calculate cost of goods sold for 2012
|