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?
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?
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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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?
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