Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Related questions
Concept explainers
Question
A Company wants to seek additional source of external financing. The current book value
structure of the company is as follows:
GHS
13% Debentures (GHS 100 per debenture)
800,000
14% Preference Shares (GHS 100 per share)
200,000
Equity Shares (GHS 10 per share)
1,000,000
The following external financing opportunities are:
(i)
A debenture with 10-year maturity, 4% flotation cost and current market price of GHS
100.
(ii)
A redeemable
market price of GHS 100.
(iii)
Equity shares – GHS 2 per share flotation costs and current market price of GHS 22.
Dividend expected on equity share at the end year is GHS 2 per share, anticipated growth rate in
dividends is 7%. Company pays all its earnings in the form dividends. Corporate tax rate is 50%.
Required – Calculate the WACC
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 3 steps with 7 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 1)Warwickshire plc is appraising a new project in a different line of business to its core operations. It has identified a suitable company, Nottingham plc, to use as a proxy. Details are as follows:Equity beta of Nottingham 1.250Market value of Nottingham's debt: £39mMarket value of Nottingham's equity: £45mCorporation Tax rate (both companies): 30%If Warwickshire is finance by £95m of equity and £95m of debt what would a suitable proxy equity beta for Warwickshire plc to use in the appraisal process? 2) Ms Obang is reviewing the performance of one of the shares in her portfolio. She bought the share a year ago for £4.00 (ex-div). Over the year it paid a dividend of 20p and the share price currently stands at £4.20 (ex-div). The shares equity beta is 1.4. The yield on short-date Treasury Bills over the year has been 1.2% and the Market Return is 6%. Using the CAPM, what has been the performance of the share over the last year? 3) The following information relates to the acquisition of…arrow_forwardAnsarrow_forwardParagraph:Santa PLC is an all equity financed company with 100 million shares outstanding trading at €2 per share. Its management has decided to invest in a major new development that will cost € 40 million, and is now considering ways to finance the investment. Various alternatives have been considered but the choice has been narrowed down to a rights issue or the issue of debentures (a kind of bond).The rights issue would be made at a discount of 20% and be underwritten at a cost of 2% of the proceeds. The company’s chairman has discussed the proposed investment and its prospects as well as the financing possibilities, quite openly with various institutions and the financial press. As a result it is likely that the share price already reflects the implications of the company’s proposed investment.a) Determine the terms of the right issue, the ex-rights price and the theoretical value of the right.b) Explain and assess the view that rights issues are designed to protect the interests…arrow_forward
- A company has EBITDA of $100m. If a private equity fund acquires this company in a Leveraged Buy-Out for an EBITDA multiple of 3x, borrowing 50% of the purchase price, and sells the company for a multiple of 5x when the company's EBIDTA has increased to $150m, what will be the value of the equity investment in the company upon exit? What is it as a multiple of the initial equity investment? 8)arrow_forwardAuto Motors Plc is a listed automotive company financed by a mixture of debt and equity. The company’s finance department is about to undertake its annual revision of the weighted average cost of capital (WACC) for use in all of the company’s investment appraisals for the forthcoming year. The following information on the company’s long-term financing was available as at 31 May 2023. £m 220 million ordinary shares of 25 pence each 55 Share premium 23 Revaluation reserve 26 Retained earnings 33 12% loan stock (2025) 100 The loan stock interest for the year has just been paid. Interest on this loan will be paid on 31 May 2024 and 2025. On 31st of May 2025,…arrow_forwardCompany A has a market capitalization of $2410539999 and 22833777 shares outstanding. It plans to distribute $35977773 through an open market repurchase. Assuming perfect capital markets: What will the price per share of the firm be right after the repurchase?arrow_forward
- please answer the question as in attached file asap. thanksarrow_forwardSuppose that a bank purchased 15 million shares of Company E. The shares are bid $34.2 and offer $35.4. The mean and standard deviation of the bid-ask spread are 0.034483 and 0.054, respectively. What is the cost of liquidation that we are 99% confident will not be exceeded (i.e., in a stressed market condition)? O 2.402 O 0.259 O 1.201arrow_forwardA firm is making an initial public offering. The investment bankers agree to a firm-commitment underwriting for 480,000 shares that would be priced to the public at $33 per share. The underwriter’s spread is 6 percent. What will be the proceeds for the issuer and the underwriter?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education