Capital structure of Sun Ltd., as at 31.03.2003 was under:ParticularsEquity share capital8% Preference share capital12% DebenturesReservesRs.In.lacs80406432Sun Ltd., earns a profit of Rs.32Lakhs annually on a average before deduction ofincome-tax which works out to 35% and interest on debentures.Normal return on equity shares of companies similarly placed is-9.6% provided:Profit after tax covers fixed interest and fixed dividends at least 3 times.Capital gearing ratio 0.75.Yield on share is calculated at 50% pf profits distributed and at 5% onundistributed profits.Sun Ltd., has been regularly paying equity dividend of 8%.Compute the value per equity share of the company.

The capital gearing ratio compares the owner’s equity to the long-term funds borrowed by the…

Answered: Capital structure of Sun Ltd., as at…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The following information is available in respect of the rate of return on investment (r), the cost of capital (k) and earnings per share (E) of ABC Ltd. Rate of return on investment (r) i. 15% ii. 12%; and iii. 10% Cost of Capital (k) Earnings per Share (E) 12% Rs. 10 Determine the value of its shares using Gordon's Model assuming the following : S. No. D/P Ratio (1 - b) Retention Rati A 100 80 20 C 40 60
1 Following is the Balance sheet of Jay Limited: Liabilities Equity Shares of Rs. 10 each Retained Earnings } VESHUR 6% Preference Share of Rs.10 each General Reserve Debenture Redemption Fund 5% Debentures Sundry Creditors Total Liabilities Amoun Required: Calculate value per share by using following 1. Yield Method 2. Net Assets Method t 300,000 200000 Assets Fixed Assets Allowances for Depreciation 21 13303 90,000 880,000 200,000 Current assets 5,000 Preliminary Expenses Unwritten Off Discount 25,000 60,000 Amoun t 600,000 (75,000) 340,000 10,000 5,000 Total Assets Current Assets include investments of Rs.50,000 market price of which is Rs.90,000. Debtors included in current assets are doubtful to the extent of Rs.25,000 for which no provision has been made so far. Debenture interest owes for two years and preference dividends are in arrear for two years. Earnings before tax is Rs.280,000 and Tax rate is 35%. The normal rate of dividend is 20%. 880,000
a. You are required to calculate the Weighted Average Cost of Capital (WACC) of Sethoo & Sons Limited from the data below: Black Limited Star Limited Number of Ordinary Shares (GHC 1.00) 2,000,000 1,000,000 Net Income available 600,000 250,000 to Ordinary Shares Gross Dividend 500,000 200,000 Market Price per share Market value of Debts 3,000,000 Annual Growth rate 3.00 2.00 1,500,000 1296 10% of Dividend Gross Interest yield 10% 119% NOTE: The corporation tax rate is 506. Debts are currently quoted at GHC 100 per block. b. Explain why the Market Value Approach of calculating WACC is preferred to the Book Value Approach c. What are the uses of Weighted Average Cost of Capital?
1. You are required to calculate the Weighted Average Cost of Capital (WACC) of Sethoo & Sons Limited from the data below: Black Limited Star Limited Number of Ordinary Shares (GH¢1.00) 2,000,000 1,000,000 Net Income available to Ordinary Shares 600,000 250,000 Gross Dividend 500,000 200,000 Market Price per share 3.00 2.00 Market value of Debts 3,000,000 1,500,000 Annual Growth rate of Dividend 12% 10% Gross Interest yield 10% 11% NOTE: The corporation tax rate is 50%. Debts are currently quoted at GH¢100 per block. 2. Explain why the Market Value Approach of calculating WACC is preferred to the Book Value Approach. 3. What are the uses of Weighted Average Cost of Capital?
Assuming the following: 1.4mm outstanding shares 2. $40mm of pre-tax Net Income 3. $9mm of Depreciation 4. PE multiple of 16x 5. $1.75 quarterly dividend which is expected to grow by 4.23% 6. Book value of $115mm 7. Outstanding debt Of $150mm 8. After-tax cost of debt of 6% 9. Current share price of $125 10. Tax rate of 25% 11. EBITDA Multiple of 7x. What is the value of equity using the EBITDA multiple methodology? A form of the correct answer would be $53mm.
A company has the following book value in capital structure:GHSMEquity capital (in shares of GHS 10 each, fully paid-up at par)1511% Preference capital (in shares of GHS 100 each, fully paid-up at par)1Retained earnings 2013.5% Debentures (of GHS 100 each)1015% Term Loans12.5The next year expected dividend on equity shares is GHS 3.60 per share and the dividend per share is expected to grow at 7% into the foreseeable future. The market price per share is GHS 40. Preference stock, redeemable after 10 years is currently selling at GHS 75 per share. Debentures, redeemable after six years, are selling at GHS 80 per debenture. The income-tax rate for the company is 40%Required Calculate the weighted average cost of capital of raising new capital.
If the common stock of Comdisco pays an annual dividend of $0.28, has a PE ratio of 11, and closed at 25, what are the current earnings per share? a. $7.00 b. $2.27 c. $3.08 d. $1.12
1. You are required to calculate the Weighted Average Cost of Capital (WACC) of Sethoo & Sons Limited from the data below: Black Limited Star Limited Number of Ordinary Shares (GHC 1.00) 2,000,000 1,000,000 Net Income available to Ordinary Shares 600,000 250,000 Gross Dividend 500,000 200,000 Market Price per share 3.00 2.00 Market value of Debts 3,000,000 1,500,000 Annual Growth rate of Dividend 12% 10% Gross Interest yield 10% 11% NOTE: The corporation tax rate is 50%. Debts are currently quoted at GHC 100 per block. 2. Explain why the Market Value Approach of calculating WACC is preferred to the Book Value Approach. 3. What are the uses of Weighted Average Cost of Capital?
The following information is collected from the current annual report of XYZ Ltd: Earning of firm Rs. 9, 00,000 Number of equity shares 1, 50,000 Return on Equity 22.5% Cost of equity 15%What should be the dividend payout ratio so as to keep the share price at Rs. 48 byusing Walter Model? Also, determine the optimum dividend payout ratio and themarket price of share at the optimum dividend payout ratio. What will themaximum and minimum share price under this model?
Following are the information of M/s Arbind minerals. 9% preference shares of 10 each 2,00,000 Equity shares of? 10 each 9,00,000 11,00,000 Profit after tax at 50% 2,50,000 Equity dividend paid 20% Market price per equity share 50 Calculated earnings per share, price earning ratio, and dividend payout ratio.
The following information has been extracted from the published accounts of Pesa Corporation Limited, a company quoted on the Nairobi Stock Exchange. Shs. Net profit after tax and interest 990,000 Less: dividends for the period 740,000 Transfer to reserves 250,000 Accumulated reserves brought forward 810,000 Reserves carried forward 1,060,000 Share capital (Sh.10 par valu Sh.8,000,000 Market price per share now 12% RequiredCalculate…
Illu.1: NIT Ltd. declared dividend at 25% on its shares of Rs.10.Rs.6 paid up.Its share are quoted in the market at Rs.10. You are required to calculate the normal rate of earnings.

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