2. a) Madona & Co has structured the Company's capital as follows : 8% Debenture 100000 Tk. 12% Preference Share 50000 Tk. Common Share 120000 Tk. Retained Earnings 30000 Tk. Total 3000000.00 Other Information: I. The common Shares of the company sell for TK. 30 each. I. It is expected that the company will pay next year a dividend of Tk. 2.5 per share that will grow at 4% forever. II. The market price of preference share is Tk. 96 (par value Tk. 100). A flotation cost of 5% of the market price would be incurred to the issue of all kinds of shares. IV. The Company's marginal tax rate is 40%. Requirements: You are required to calculate the WACC of Madona & Co.
2. a) Madona & Co has structured the Company's capital as follows : 8% Debenture 100000 Tk. 12% Preference Share 50000 Tk. Common Share 120000 Tk. Retained Earnings 30000 Tk. Total 3000000.00 Other Information: I. The common Shares of the company sell for TK. 30 each. I. It is expected that the company will pay next year a dividend of Tk. 2.5 per share that will grow at 4% forever. II. The market price of preference share is Tk. 96 (par value Tk. 100). A flotation cost of 5% of the market price would be incurred to the issue of all kinds of shares. IV. The Company's marginal tax rate is 40%. Requirements: You are required to calculate the WACC of Madona & Co.
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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Transcribed Image Text:2. a) Madona & Co has structured the Company's capital as follows :
8% Debenture
100000 Tk.
12% Preference Share
50000 Tk.
Common Share
120000 Tk.
Retained Earnings
30000 Tk.
Total
3000000.00
Other Information:
I.
The common Shares of the company sell for TK. 30 each.
II.
It is expected that the company will pay next year a dividend of Tk. 2.5 per share that
will grow at 4% forever.
III.
The market price of preference share is Tk. 96 (par value Tk. 100). A flotation cost of 5%
of the market price would be incurred to the issue of all kinds of shares.
IV.
The Company's marginal tax rate is 40%.
Requirements: You are required to calculate the WACC of Madona & Co.
Helping notes for math 2: read the question carefully, then first find out the cost of debenture,
preference share, and common share individually, and use these values as cost of individual cost
to calculate WACC.
WACC= Weight x cost of capital (For each source of capital). Then make a sum total.
Weight for each source = each source / total capital
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