A company is planning to raise GHS 2000000 additional long-term funds to finance its additional capital budget of the current year. The debentures of the company to be sold on a 14% net yield basis to the company, and equity shares to be sold at GHS 50 per share net to the company, are the alternative being considered by the company. The company expects to pay dividend of GHS 5 per share at the end of the coming year. The expansion is expected to carry the company into new higher risk class. The required rate of return on equity from the point of view of the investment community is 16%. i.Determine the growth rate of the company, which the market is anticipating.ii.Management is anticipating 8% growth rate. On this basis, at what price should the equity share be sold by the company?iii.Assuming that management is anticipating growth rate of only 4% per year, would you still recommend equity financing?

A 5-year project will require an investment of $100 million. This comprises of plant andmachinery worth $80 million and a net working capital of $20 million. The entire outlay willbe incurred at the project’s commencement.Financing for the project has been arranged as follows:80,000 new common shares are issued, the market price of which is $500 per share. Theseshares will offer a dividend of $4 per share in year 1, which is expected to grow at a rate of 9%per year for an indefinite tenure.Remaining funds are borrowed by issuing 5-year, 9% semi-annual bonds, each bond having aface value of $1,000. These bonds now have a market value of $1,150 each.At the end of 5 years, fixed assets will fetch a net salvage value of $30 million, whereas the networking capital will be liquidated at its book value.The project is expected to increase revenues of the firm by $120 million per year. Expenses,other than depreciation, interest and tax, will amount to $80 million per year. The firm is subjectto…

A 5-year project will require an investment of $100 million. This comprises of plant and machinery worth $80 million and a net working capital of $20 million. The entire outlay will be incurred at the project’s commencement. Financing for the project has been arranged as follows: 80,000 new common shares are issued, the market price of which is $500 per share. These shares will offer a dividend of $4 per share in year 1, which is expected to grow at a rate of 9% per year for an indefinite tenure. Remaining funds are borrowed by issuing 5-year, 9% semi-annual bonds, each bond having a face value of $1,000. These bonds now have a market value of $1,150 each. At the end of 5 years, fixed assets will fetch a net salvage value of $30 million, whereas the net working capital will be liquidated at its book value. The project is expected to increase revenues of the firm by $120 million per year. Expenses, other than depreciation, interest and tax, will amount to $80 million per year. The firm…

A 5-year project will require an investment of $100 million. This comprises of plant and machinery worth $80 million and a net working capital of $20 million. The entire outlay will be incurred at the project’s commencement. Financing for the project has been arranged as follows: 80,000 new common shares are issued, the market price of which is $500 per share. These shares will offer a dividend of $4 per share in year 1, which is expected to grow at a rate of 9% per year for an indefinite tenure. Remaining funds are borrowed by issuing 5-year, 9% semi-annual bonds, each bond having a face value of $1,000. These bonds now have a market value of $1,150 each. At the end of 5 years, fixed assets will fetch a net salvage value of $30 million, whereas the net working capital will be liquidated at its book value. The project is expected to increase revenues of the firm by $120 million per year. Expenses, other than depreciation, interest and tax, will amount to $80 million per year. The firm…