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

Bond Valuation, The Pennington Corporation issued a new series of bonds on ...

The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31,

Who owns a credit union, Who owns a credit union? Explain. The term Cre...

Who owns a credit union? Explain. The term Credit unions are owned by their members. While credit union members put money in their credit union, they are not exactly "depositin

Explain payback period of CHROMEX PLC, CHROMEX PLC Payback period ...

CHROMEX PLC Payback period Payback period must be based on cash flows that is the cash generated from operations and the capital invested by Chromex. Profit is different f

Cost of preference share capital, I need assistance on Cost of preference s...

I need assistance on Cost of preference share capital in financial management? Can someone help me to solve this proble with example It's Urgent!!!!!!!

Return risk and security market line /net present value .., return risk and...

return risk and security market line /net present value and investment critirea actually iwill be tested in 6 question culculation and 1 question theory about risks

State the concept of icq, ICQ's designed to: Identify possible area...

ICQ's designed to: Identify possible areas of weakness. Discover existence of internal controls. Questions are framed to highlight situations where: NO su

Explain the time value of money, What is the time value of money? The m...

What is the time value of money? The meaning of time value of money is that money you hold in your hand today is worth much more than money you suppose to receive in the future

Time value of money, Can you help me out on the Time value of money????? ...

Can you help me out on the Time value of money????? I need urgent help on this topic...

Financial ratio , #qCash Dividend Ratio uestion..

#qCash Dividend Ratio uestion..

Collecting information and forecasting in budget, Collecting Information an...

Collecting Information and Forecasting: All budgets must be based on accurate and reasonable information. A budget derived from information which is irrelevant to the actual or

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