Reference no: EM132917303

Perpetual Ltd is considering an expansion. Consider the following information about the financial structure of the firm.

Account payables       $ 200,000
Short-term debt           200,000
Current liabilities          $ 400,000
Long-term debt        $ 1,500,000
Owner's equity           2,500,000
Total                      $ 4,400,000

Assume that the company paid a dividend of $4.00 per share last year and the dividend is expected to grow at 5 per cent for the next 7 years, and after that the growth rate will be 6 per cent forever.

Required

Problem a. If the firm aims to maintain a debt ratio of 30 per cent and need to raise an additional $1.3 million, how much equity does it need to finance the expansion?

Problem b. Calculate the value of the share if the required rate of return is 14.5 per cent?