What would an investor consider the optimal mix

Assignment Help Financial Management

Reference no: EM132036716

a) Equity can form part of a company’s capital structure. What would an investor consider the optimal mix?

b) PaZed Corporation is expected to have a temporary supernormal growth period and then level off to a “normal,” sustainable growth rate forever. The supernormal growth is expected to be 25% for 3 years and then level off to 8% forever. The market requires a 14% return on investment and the company last paid a K 1.60 dividend. What would the market be willing to pay for the stock today?

c) Bushel Recycling Ltd. is a well-established recycling business. The company has the following capital structure: Debt 20%; Preferred stock 15% and Equity 65% .The market attracts interest rates of 15% for debt and 13% for preferred stock, with a corporate tax rate of 35%. The market beta for metal scrap companies is 1.5, while the risk free rate is 12%.The market risk premium is 5%.

Required

Using the CAPM approach, determine the appropriate WACC.

d) ABZ milling company balance sheet shows the following capital structure for 2010

9% Debt K4, 500,000

7% preferred Stock K1, 500,000

Common Stock K1, 000,000

The company last dividend was K4 and is expected to grow at 5 percent yearly and common stock is currently quoted at K40.The corporate tax rate is 33%.

Calculate the weighted average cost of capital (WACC) for Timber limited.

Reference no: EM132036716

Questions Cloud

Calculate the npv of the modernization project : Using a discount rate of 11 percent, calculate the NPV of the modernization project.

Comparing projects using the internal rate of return : Describe the reinvestment rate problem associated with comparing projects using the internal rate of return.

Optimal capital structure calls for debt : Does this mean that Axis Chemical Co.'s optimal capital structure calls for 45% debt? Yes or No

What is the theoretical stock price : What’s the annual growth when the investment is made? What is the theoretical stock price?

What would an investor consider the optimal mix : Equity can form part of a company’s capital structure. What would an investor consider the optimal mix?

What value would you assign to bond : You have been hired to value a new 20-year callable, convertible bond. What value would you assign to this bond?

Sole proprietor vs public limited company : Sole Proprietor vs Public Limited Company. Profit Maximisation vs Wealth Maximization.

Maximum price ola industries should pay for equipment : What’s the maximum price OLA Industries should pay for the equipment?

Firm is looking to invest in new air-conditioning filters : Sal Enterprises is a local taxi company run by a sole proprietor, Sal Goodman. The firm is looking to invest in new air-conditioning filters.

User Account

All Pages