Bonakid Inc. has decided to invest P10,000,000 in a new headquarters and needs to determine the best way to finance the construction. The firm currently has P50,000,000 of 10% bonds and 4,000,000 common shares outstanding. The firm can obtain the P10,000,000 of financing through a 10% bond issue or the sale of 1,000,00O shares of common stock. The firm has a 40 percent tax rate. What is the degree of financial leverage for Bond Issue plan at P25,000,000 of EBIT? (answer
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- Syndicate Ltd. is re-evaluating the rate of return demanded by its investors for new projects with the following projects being reviewed by the board for possible investment: Investment Investment Cost ($) Rate of Return (%) A 1,500,000 15 B 2,000,000 12 C 5,000,000 9 D 750,000 6 The latest balance sheet for Syndicate Ltd shows: Long Term Debt Book Value ($) Bonds: Issued at par: $100 5,000,000 Annual coupon of 6% 4 years to maturity Equity Preference Shares: 1,000,000 100,000 shares issued Ordinary Shares: 4,000,000 1,000,000 shares issued The company’s bank has advised that…Syndicate Ltd. is re-evaluating the rate of return demanded by its investors for new projects with the following projects being reviewed by the board for possible investment: Investment Investment Cost ($) Rate of Return (%) A 1,500,000 15 B 2,000,000 12 C 5,000,000 9 D 750,000 6 The latest balance sheet for Syndicate Ltd shows: Long Term Debt Book Value ($) Bonds: Issued at par: $100 5,000,000 Annual coupon of 6% 4 years to maturity Equity Preference Shares: 1,000,000 100,000 shares issued Ordinary Shares: 4,000,000 1,000,000 shares issued The company’s bank has advised that…WonderWorld Widgets (WWW) needs to raise $75 million in debt. To issue thedebt, WWW must pay its underwriter a fee equal to 3 percent of the issue.The company estimates that other expenses associated with the issue will total$466,000. If the face value of each bond is $1,000, how many bonds must beissued to net the needed $75 million? Assume that the firm cannot issue a fractionof a bond (i.e., half of a bond)—only “whole bonds” can be issued.
- MAGGIE LTD Q&S (Computing individual or component costs of capital) Compute the cost of capital foreach of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rateof 12 percent. Interest payments are $120 and are paid semiannually. The bond hasa current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percent. b. A new common stock issue by a firm that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 8 percent per year forever. The price ofthe firm's common stock is now $28.00. c. A preferred stock that sells for $150, pays a 10 percent annual dividend, and has a $125 par value. d. A bond whose yield to maturity (based on the bond's market price) is 13 percentwhere the firm's tax rate is 34 percent. Identify the features and working formula for this question as per below (add if there's more): - Par Value = Coupon rate = Interest payments =…Setrakian Industries needs to raise $99.4 million to fund a new project. The company will sell bonds that have a coupon rate of 6.02 percent paid semiannually and that mature in 25 years. The bonds will be sold at an initial YTM of 6.82 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds? O 99,400 bonds O 181,154 bonds O 54,939 bonds 68,674 bonds A Moving to another question will save this response. Question 19 of 30Shiloh Ltd is buying a piece of equipment for GH¢100,000. The company intends to finance the purchase using debt and equity. A loan (debt) of GH¢30,000 is to be sourced from GCB at an interest rate of 16% per annum. The remaining GH¢70,000 will be financed using equity. The firm is listed on the GSE with an equity beta of 2.5. The risk free rate of interest is 10% and the market risk premium is 10%%. The marginal tax rate of the firm is 25%. The equipment is expected to generate the following cash flows: Year Cash Flows (GH¢) 1 25,000 2 39,000 3 42,000 4 35,000 5 25,000 6 30,000 Required: Advise whether the company should buy the equipment or not using the NPV and profitability index Why would you prefer the NPV method to other methods of project evaluation?
- Shiloh Ltd is buying a piece of equipment for GH¢100,000. The company intends to finance the purchase using debt and equity. A loan (debt) of GH¢30,000 is to be sourced from GCB at an interest rate of 16% per annum. The remaining GH¢70,000 will be financed using equity. The firm is listed on the GSE with an equity beta of 2.5. The risk free rate of interest is 10% and the market risk premium is 10%%. The marginal tax rate of the firm is 25%. The equipment is expected to generate the following cash flows: Year Cash Flows (GH¢) 1 25,000 39,000 42,000 35,000 5. 25,000 6. 30,000 1. Advise whether the company should buy the equipment or not using the NPV and profitability index Why would you prefer the NPV method to other methods of project evaluation? 11. 4.Orion Corporation is discussing a new capital expenditure project that requires an investment of €100 million. In line with the target capital structure of Orion, the management of the company has prepared the following funding plan:- A 5-year zero-coupon bond with face value of €32 million, priced at 80% of its face value.- A 5-year coupon bond, with 4% annual coupons, face value of €26 million, priced at 95% of its face value. -Preferred shares with a total €18 million face value. The issue price is at €40 with a preferred coupon of 12%. The flotation expenses are 2% on the issue price.-The remaining financing needs will be covered from retained earnings. Currently, the stock of the company trades at €50, the last dividend payment was €2.5 per share, and the expected growth rate for dividends is 8 percent. In addition, the beta of the stock is 1.4, the risk-free rate is 4 percent, and the expected market risk premium is 8 percent. Questions:1. Estimate the WACC of Orion…Tech Corp had gross sales of $9 million and total ex- of $8.5 million. Assume that Tech wants to penses undertake a capital investment of $1 million. What is the minimum amount of bonds it would have to issue to do so? Assume that Tech pays out $300,000 in dividends. Now what is the minimum amount it would have to borrow?
- Mom's Motel Corporation (MM) plans to issue bonds to raise $175 million that it needs to support future operations. MM's investment banker will charge flotation costs of 2.5% of the total amount issued to help MM raise the funds. In addition, MM will incur other costs associated with the issue that equal $500,000. The market value of each bond at issue time will be $1,000. How many bonds must GM sell to net $175 million that it needs?The Optical World Corporation, a manufacturerof peripheral vision storage systems, needs $10 million to market its new robotics-based vision systems.The firm is considering two financing options: common stock and bonds. If the firm decides to raise thecapital through issuing common stock, the flotationcosts will be 6%, and the share price will be $25. Ifthe firm decides to use debt financing, it can sell a10-year, 12% bond with a par value of $1,000. Thebond flotation costs will be 1.9%.(a) For equity financing, determine the flotationcosts and the number of shares to be sold to net$10 million.(b) For debt financing, determine the flotation costsand the number of $1,000 par value bonds tobe sold to net $10 million. What is the requiredannual interest payment?Wavering Plc is trying to decide on what discount rate to use when appraising future capital investment options. It is currently financed by a mixture of debt and equity, detailed as follows: Book value £000s 1 million £1 ordinary shares 1,000 Retained earnings 1,5007500 8% Pref. Share of £100 each 75012,500 £100 6.4% irredeemable debentures 1,250 Mortgage at 10% interest rate (secured on premises) 250 The market price of ordinary shares is £3.00, and the debentures have a market price of £80. The company pays corporation tax at a rate of 30%. The current return on government securities is 5%, the average stock market rate of return is 9% and the company has a beta value of 1.6. The management is considering taking…