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Question 2: A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice president of finance, has given you the following information and has asked you to compute the weighted average cost of capital. The company currently has outstanding a bond with a 10.6 percent coupon rate and another bond with an 8.2 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 11.5 percent. The common stock has a price of $65 and an expected dividend (D1) of $1.50 per share. The historical growth pattern (g) for dividends is as follows: $1.40 1.54 1.69 1.85 Compute the historical growth rate, round it to the nearest whole number, and use it for g The preferred stock is selling at $85 per share and pays a dividend of $8.50 per share. The corporate tax rate is 25 percent. The flotation cost is 2.6 percent of the selling price for preferred stock. The…

Q.An unlevered company that has a current value of $1,600,000 is considering borrowing $700,000 and using the borrowed funds to repurchase shares. The company can borrow at 5% and has a cost of equity of 13%. EBIT is expected to remain the same every year forever. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied. What is the company's EBIT according to M&M Proposition I without taxes?

Part II: Problem solving (30 points): A firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Long-term debt Preferred stock Common stock equity Target Market Proportions 30% 5 65 Debt: The firm can sell a 20-year, $1,000 par value, 9 percent bond for $980. A flotation cost of 2 percent of the face value would be required. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The cost of issuing and selling the stock is $3 per share. Common Stock: The firm's common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.45. It is expected that to sell, a new common stock issue must be underpriced at $1 per share and the firm…

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Give typing answer with explanation and conclusion A financial analyst is calculating the theoretical value or target price that company A's share should have. Its share is currently trading at $100 usd in the market, it has 5 million shares outstanding. Total assets amount to $700 million. Total liabilities are 50% of assets and your debt is 40% of liabilities. It does not have minority capital and the balance in cash and short-term investments is $7 million. Asset turnover is 1.2x and the EBITDA margin is 20%. If the EV to EBITDA multiple of the sector where the company operates is with a median of 5x and an average of 7x. What should the share price be?

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Question 1:Suppose Your Company where you work as Finance Director is Financed by both debt (bonds) and equity (shares). In the Board Meeting, it was agreed that you needed to raise extra funds for capital Expenditure (Kn1 Million). Since your company is listed on the Lusaka Stock Exchange, you sold 400 worth of bonds at Kn1,000 each at 5% coupon rate (A total of Kn 400,000 raised). The company further issued stocks (shares) totaling 6,000 at Kn 100 each with an expected return of 6% (cost of equity). The company therefore managed to raise the required amount of Kn 1, 000,000 for the desired capital expenditure.Assume Corporate Tax Rate is 35%. REQUIRED:i) Explain in detail what is meant by the weighted average cost of capital         (WACC) ii) Calculate the Weighted Average Cost of Capital (WACC) for your                  company. iii) What do you think are the major roles of a Corporate Finance Director         in the ModernTimes?

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Identify information used in an investment decision Look forward to the daywhen you will have accumulated $5,000, and assume that you have decided to investthat hard-earned money in the common stock of a publicly owned corporation. Whatdata about that company will you be most interested in, and how will you arrangethose data so they are most meaningful to you? What information about the company will you want on a weekly basis, on a quarterly basis, and on an annual basis?How will you decide whether to sell, hold, or buy some more of the firm’s stock?

Finance You have been appointed as a financial consultant by the directors of Chennai Holdings. They require you to calculate the cost of capital of the company. The following information is available on the capital structure of the company: • 1 500 000 Ordinary shares, with a market price of R3 per share. The latest dividend declared was 90 cents per share. A dividend growth of 13% was maintained for the past 5 years. • 1 000 000 12%, R1 Preference shares with a market value of R2 per share. • R1 000 000 Debentures due in 7 years with a current market value of R 951 356 and • a before tax cost of 10% • R900 000 14% Bank loan, due in December 2016 Additional information: 1. The company has a tax rate of 30%. 2. The beta of the company is 1.7, a risk free rate of 7% and the return on the market is 15%. Required: 1.1 Calculate the weighted average cost of capital (WACC). Use the Gorden Growth • Model to calculate the cost of equity. (17) 1.2 Calculate the cost of equity, using the…

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Question: 52 You are considering investing in Nuran Security Services. You have been able to locate the following information on the firm: total assets are $26.95 million, accounts receivable are $4.30 million, ACP is 30 days, net income is $4.50 million, and debt-to-equity is 1.20 times. Calculate the ROE for the firm.

You are an investment adviser. One of your clients approaches you for your advice on investing in equity shares of Alpha Company. You have collected the following data: Earnings per share last year $6.00 Payout ratio 0.40 Return on equity 0.30 Cost of equity capital 0.20 The company plans to increase the payout ratio to 60% from year 5. Required: i) Estimate the price of an equity share of this company using an appropriate dividend discount model and advise your client whether they should buy a share of the company. ii) Your client is keen to know whether there are any positive growth opportunities from their investment. Explain to your client the meaning of this concept using appropriate calculations. Notes: You need to show detailed calculations in order to receive full marks for this question iii)If there are positive or negative growth opportunities, explain the reason for such opportunities.

F. A PROBLEM

You are an investment adviser. One of your clients approaches you for your advice on investing in equity sharesof Alpha Company. You have collected the following data:Earnings per share last year $5.00Payout ratio 0.30Return on equity 0.30Cost of equity capital 0.25The company plans to increase the payout ratio to 40% from year 6.Required:i) Estimate the price of an equity share of this company using an appropriate dividend discount modeland advise your client whether they should buy a share of the company.ii) Your client is keen to know whether there are any positive growth opportunities from theirinvestment. Explain to your client the meaning of this concept using appropriate calculations.

3. (a): The stock price for Bank Muscat was OMR 100 per share one year ago. The stock is currently trading at OMR 92 per share. Shareholders just received OMR 20 as dividend. Calculate the "Return" was earned over the past year? (b): First find W, and then calculate the "Weighted average" cost of capital of a Company from the following table details: Capital Component Amount WCost Debt Preferred Stock Common Stock 40,000 5% 30,000 6% 50,000 4%

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Consider an all-equity firm that is contemplating going into debt. The market value of equity is calculated as Free Cash Flow/required rate of return.                                       Current            Proposed         Assets                         $10,000           $18,000           Debt                                     $0             $8,000           Equity                          $10,000           $10,000           Debt/Equity ratio               0.00                  .80            Interest rate                          n/a                    7%          Shares outstanding             500                 500            Share price                         $20                 $20     (e ) If the company stock price goes up by 2% from announcing it is adding debt to expand the business, what effect does this have on the WACC?

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2. A venture capitalist wants to invest $1,000,000 in your company Chatt-Town Industries. You do not expect to make a profit until year four when your net income (profit) is expected to be $3,000,000. The common stock of Nash-Vegas Corporation, a "comparable" firm, currently trades in the over-the- counter market at $8 per share. Nash-Vegas's net income (profit) for the most recent year was $1,000,000 and the firm has 500,000 shares of common stock outstanding (for a market capitalization of $4,000,000). Apply the VC method to determine the value of the Chatt-Town Industries at the end of four years. A. What is the comparable firm's earnings per share (EPS)?

A Corporation will pay a dividend of $2.85 per share next year. The company pledges to increase its dividend by 9.1 percent per year, indefinitely. If you require a return of 21 percent on your investment, how much will you pay for the company's stock today? Select one: a.$23.95 b.$38.12 c.$23.38 d.$38.89

Imagine yourself as a financial manager in a company, and you are requested to provide a financial report including the calculation of the current market rate of return from the investor's perspective for each of the four investment options, taking into consideration the followings:  Common stocks available for investment are:  2,500,000 shares of common stock, with a par balance of $1 per share.  The current market value of the common share is $24.43 per share.  Annual earnings per share $1.95.  Bonds available for investment  $1,750,000 bonds (A) with an interest of 6.25%, with a current market value of $104 per bond (price of $104 per $100).  $2,250,000 Notes B, with an interest rate of 5.75%, with a current market value of $94.50 (price $94.50 per $100 note).  The corporate tax rate is 35%.  Preferred shares available for investment  950,000 outstanding preferred shares with a par value of $10 with a preferential dividend payment…

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