What is cax after-tax cost of debt is taxation

Assignment Help Financial Management

Reference no: EM132023348

Financial Management

Cax Ltd issued corporate bonds with a coupon rate of 8.0%. The face value is N$100 and the bond is stated on the statement of financial position at its total par value of N$80m. The bonds are currently trading at a price of N$94. Interest is payable annually in arrears. The maturity date is in five years’ time. The company has also issued variable loan finance of N$10m at a current interest rate of 9.0% per year.

The company has 200 000 non-redeemable preference shares which were issued at a price of N$100 each. Preference dividends are payable annually in arrears. The non-redeemable preference shares are currently priced at N$106. The coupon rate is 8% and the company has recently paid the preference dividends for the current year. The company’s equity beta is 1.15 and the risk free rate is 6%. The company uses a market premium of 6.5% as this is the average between 5-8 which is the range of the market premiums recommended by some analysts. The current share price is N$3.20 and the company has 30 million ordinary shares in issue.

Required:

(a) What is Cax’s after-tax cost of debt is taxation is 30%?

(b) What is the cost of preference shares?

SHOW YOUR DETAILED WORKINGS

Reference no: EM132023348

Questions Cloud

Estimated monthly variable costs using high-low method : How much are estimated monthly variable costs using the high-low method?

Calculate and report the sharpe performance measure : Calculate and report the Sharpe Performance Measure (SHP) for each country (Return/Risk).

What will be its dollar cost of the payable under this hedge : Explain MMC’s forward market hedge. What will be its dollar cost of the payable under this hedge?

The maturity of the corresponding claim was calculated : The price of the bond changed, and the maturity of the corresponding claim (YTM) was calculated as 10%. What is the price of this bond?

What is cax after-tax cost of debt is taxation : Cax Ltd issued corporate bonds with a coupon rate of 8.0%. What is Cax’s after-tax cost of debt is taxation is 30%? What is the cost of preference shares?

Will the project increase the value of the firm : Will the project increase the value of the firm, decrease it, or have no impact on the value of the firm?

Associated with firm having low dividend payout ratio : Which of the following factors would not tend to be associated with a firm having a low dividend payout ratio?

When firm issues permanent debt : When a firm issues permanent debt, the value of all its securities:

An implicit cost of adding debt to the capital structure : An implicit cost of adding debt to the capital structure is that it:

User Account

All Pages