advanced financial management, Financial Management

advanced financial management, Financial Management

Assignment Help:

QUESTION 1 [25 marks]
Xelo Ltd, whose current sales consist of fixed operating costs of R140 000 and variable operating costs equal to 22% of sales, has made the following two sales estimates with their noted probabilities.
Sales
Probabilities
R450 000
0.35
R710 000
0.65
Xelo Ltd is currently 100% equity financed with a total market value of R450 000, consisting of ordinary shares trading at R5 each. Xelo Ltd pays all its net income as dividends and is in a 15% tax bracket. The firm is considering using one of the following capital structures:
Debt ratio
Before-tax cost of debt (kd)
Required
30%
4%
17%
45%
7%
20%
REQUIRED
(a) Calculate the debt, equity and number of shares under each of the capital structures under consideration. [5]
(b) Calculate expected earnings per share (E/EPS) for the proposed capital structures. [7]
(c) Use the valuation model to estimate share value of both capital structures. [4]
(d) Based on the long-term and short-term goals of financial management, which capital structure would you recommend? [4]
(e) Based on the long-term goal, at what overall capitalisation rate would you capitalise the company and why? [5]

Related Discussions:- advanced financial management

Required rate of return, calculate

calculate

Explain and discuss the hedging strategies using futures, Question: (a)...

Question: (a) Explain and discuss the hedging strategies using futures (b) Boeing (an American company) delivered on 1st September 2008 an airplane to a Canadian company.

The authority and duties of shareholders, The authority and duties of membe...

The authority and duties of members (shareholders) Members and shareholders shall together and severally protect, conserve and actively exercise the supreme authority of the co

What are financial crises in financial markets, What are financial crises i...

What are financial crises in financial markets? Financial crises: Financial crises are described as major disruptions in financial markets which are characterised by shar

Show the graphic presentation of net income approach, Q. Show the Graphic P...

Q. Show the Graphic Presentation of Net Income Approach? Graphic Presentation of Net Income Approach: - Net Income approach is described graphically as follows: In the

Exchange of physicals, Exchange of Physicals: A trader can also complet...

Exchange of Physicals: A trader can also complete the futures contract by engaging in exchange of physicals. In this method, the parties agree to exchange cash and the commodit

Calculate the projects payback period, Project Z has a cost of $ 50,000.00,...

Project Z has a cost of $ 50,000.00, its expected net cash flows are $11,000 per year for 8 years, and its cost of capital is 12 % (Hint: begin by constructing a time line). Ins

What is capital recovery, Q. What is Capital recovery? sometimes one ma...

Q. What is Capital recovery? sometimes one may be interested to find out the annual amount paid in the order to redeem a loan of a specific amount over a specific period togeth

Business proposal of a pet care shop, With the advent of globalization ther...

With the advent of globalization there had been much importance which is being given to the issues related to the general health of pets and other associated services as the people

Mass and batch production, a) IPod -Line / Mass production is most suitable...

a) IPod -Line / Mass production is most suitable given that Apple can sell the standardised product to mass markets across the world. Only small variations to the production proces

Write Your Message!

Name

Email id

Message

Verfication Code

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!

Submit Assignment

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