Weighted Average Cost of Capital (WACC
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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 ($1 Million). Since your company is listed on the Lusaka Stock Exchange, you sold 400 worth of bonds at $1,000 each at 5% coupon rate (A total of $400,000 raised). The company further issued stocks (shares) totaling 6,000 at $100 each with an expected return of 6% (
Assume Corporate Tax Rate is 35%
REQUIRED:
Calculate the Weighted Average Cost of Capital (WACC) for your company
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- Read the following case and then use your knowledge, skills and critical thinking to answer the questions below: You are hired to work as an accountant at African Company which has an active trading strategy for debt investments. African Company engaged in purchasing and selling several debt investments to make profits. On December 31, 2018, the company had 3 debt investments as follows: Egyptian Company 7% Bonds, the amortized cost is $310,000. Tunisia Company 8% Bonds, the amortized cost is $525,000. Morocco Company 6% Bonds, the amortized cost is $415,000. If the market values of Egyptian Company, Tunisia Company, and Morocco Company debt investments on December 31, 2018, were, $304,000, $538,000, $413,000, respectively. Required 1: Prepare the debt investments portfolio for African Company on December 31, 2018, and prepare the adjusting entry on the date? Required 2: Assume that African Company sold Tunisia Company 8% Bonds on April 1, 2019 for $519,000 at that time the amortized…You have been appointed as a financial consultant by the directors of Sizonke Holdings. They require you to determine 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 85 cents per share. A dividend growth of 14% was maintained for the past 5 years. ✓ 1 000 000 11%, R1 preference shares, with a market value of R2 per share. ✓ R1 000 000 9%, debentures due in 7 years and the current yield-to-maturity is 10%. ✓ R700 000 14%, bank loan, due in December 2019. Additional information: - The company has a tax rate of 28%. - The beta of the company is 1.6, a risk free rate of 6% and the return on the market is 15%. 2.1 Calculate the weighted average cost of capital. Use the Gordon Growth Model to calculate the cost of equity. 2.2 Calculate the cost of equity, using the Capital Asset Pricing Model.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?
- 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 Kn400,000 raised). The company further issued stocks (shares) totaling 6,000 at Kn100 each with an expected return of 6% (cost of equity). The company therefore managed to raise the required amount of Kn1, 000,000 for the desired capital expenditure.Assume Corporate Tax Rate is 35%REQUIRED:Calculate the Weighted Average Cost of Capital (WACC) for your company-4. You are a member of the finance staff of Orange Ltd, whose share are listed on London Stock Exchange. You have been asked to derive a weighted average cost of capital (WACC) for use in assessing a major investment in a training facility. The business’s financial statement as at 31 December 2021 shows that it has the following long-term financial capital structure: Redeemable Debt: 5,000 redeemable debts of £100 each with 12% coupon rate Preference Shares: 46,000 shares with 9% dividend rate and a par value of £10 Ordinary shares: 0.5 million shares of £1 each On 31 December 2021, the 12% redeemable debt is traded at £114 (ex-interest). It will be redeemable at par on 31 December 2022. Interest on the debt is payable annually on 31 December. On 31 December 2021, the market price of the company’s 9% preference shares is £13.5 (cum-dividend). On 31 December 2021, the ordinary shares are quoted at £1.21 each. The ordinary shareholders will receive a 7p annual dividend per share very…Mrs. Kate Sawyer establishes a company with $220,000 of cash. $190,000 of this cash amount is paid to a supplier for an equipment purchase. Then the company has a great opportunity to enter into a project, but it has limited cash to invest in that project. Therefore, it decides to issue bonds and shares to the investors in order to raise funds. On the bond side, the company issues a $30,000 of 3-year zero-coupon bonds. The market yield is 10%. On the share side, however, the company issues $50,000 of common stock (par value: $1 each) at a price of $2.4 .At the time of these transactions are completed, what would be the total assets of the company? A) $340,000 B) $355,080 C) $362,540 D) $370,000 E) Other (Please Specify)
- 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 Capital Asset…Please I want answer for these questions by typing. Big Thanks Prepare the necessary journal entry for each of the following transactions for Nadim Corporation. a) Purchased 5,000 shares of the company’s common stocks as treasury stock, paying cash of $18 per share. b) Sold 3,000 shares of the treasury stock for cash of $22 per share. c) Sold the remaining treasury stock for cash of $10 per share. What is treasury stock? What type of account is Treasury stock, and what is the account’s normal balance?Clayton Industries has the following account balances. Current assets $25,000 Current liabilities $ 13,000 Noncurrent assets 87,000 Noncurrent liabilities 53,000 Stockholders' equity 46,000 The company wishes to raise $49,000 in cash and is considering two financing options: Clayton can sell $49,000 of bonds payable, or it can issue additional common stock for $49,000. To help in the decision process, Clayton's management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio. Required a-1. Compute the current ratio for Clayton's management. a-2. Compute the debt-to-assets ratio for Clayton's management. b. Assume that after the funds are invested, EBIT amounts to $17,500. Also assume the company pays $3,400 in dividends or $3,400 in interest depending on which source of financing is used. Based on a 30 percent tax rate, determine the amount of the increase in retained earnings that would result under each financing option.
- Clayton Industries has the following account balances: Current assets $ 24,000 Current liabilities $ 8,000 Noncurrent assets 89,000 Noncurrent liabilities 54,000 Stockholders’ equity 51,000 The company wishes to raise $34,000 in cash and is considering two financing options: Clayton can sell $34,000 of bonds payable, or it can issue additional common stock for $34,000. To help in the decision process, Clayton’s management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio. Required a-1. Compute the current ratio for Clayton’s management. (Note: Round your answers to 2 decimal places.)Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt.3. Calculate the cost of preferred equity.Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt.3. Calculate the cost of preferred equity.4. Calculate the cost of…
