Capital Budgeting., Corporate Finance

Assignment Help:
National Australia Bank is listed on the Australian Securities Exchange with code NAB. The company has 2.2731 billion shares outstanding and the closing price on 7 Sept 2012 was $25.06. It is expected to pay dividends of $1.80 per share this year (it has already paid $0.90 in the first half) and in this question you can assume this rate of dividend will continue for ever.
NAB has also issued a variety of debt instruments including some that are listed. One such listing is NABHA, a perpetual floating rate note that pays quarterly interest based on $100 face value. The latest interest rate effective from 15 May 2012 is 5.02% and you can assume in this question this rate stays constant for ever (although in practice a new rate is announced every three months for the following quarter). NABHA had a closing price of $68.00 per note on 7 Sept 2012.
The corporate tax rate in Australia is 30% but National Australia Bank organises its tax affairs well and it has reported its effective tax rate was 22.4% at September 2011.
(a) What is the cost of capital to National Australia Bank of its ordinary shares?
(b) What is the cost of capital to National Australia Bank of its NABHA floating rate notes?
(c) Imagine NABHA is National Australia Bank’s only source of debt funding and suppose there are 100 million of these notes outstanding (neither is true but this simplifies the calculations). In this case what would be the weighted average cost of capital?

Related Discussions:- Capital Budgeting.

Find out the initial probability, a)    The option to expand the capacity o...

a)    The option to expand the capacity of a project can be viewed as owning what kind of option written on the underlying project?  Explain b)    The option to shutdown a proje

Avalised bill of exchange, Questions: (a) i. Negotiation of letter...

Questions: (a) i. Negotiation of letter of credit- request to confirming Bank to pay upon handing-over and verification of documents in relation to a confirmed letter of

Find the equilibrium price and quantity in market, The widget market is com...

The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $29, $20, $16, and $12. Five buyers

Bond valuation, An investor buys a French government, 10-year bond, paying ...

An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000. The investor is unsure of his investment horizon and considers 5 horizons: 5, 6

Financial modelling, Financial Modelling Read carefully the case notes ...

Financial Modelling Read carefully the case notes overleaf. Factor models on explaining firm's returns in a credit risk context. Is the usual one-factor model good enough?

Expected npv and standard deviation of npv, 1. The managers of Merton Medic...

1. The managers of Merton Medical Clinic are analyzing a proposed project. The project's most likely NPV is $120,000, but, as evidenced by the following NPV distribution, there is

Describe reasons for corporate restructuring, 1. Describe three different...

1. Describe three different types of Mergers, and in what circumstances you expect to see each type occurring. 2. Just as Acquisitions and Mergers are a means by which compan

Evaluate accounting method, Question 1: Collect a current annual report (2...

Question 1: Collect a current annual report (2009) of an Australia listed company. Select the firm that reported the following assets. Select BOTHtypes of assets. Proper

Write Your Message!

Captcha
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!

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