a. You are required to calculate the Weighted Average Cost of Capital (WACC) ofSethoo & Sons Limited from the data below:Black LimitedStar LimitedNumber of OrdinaryShares (GHC 1.00)2,000,0001,000,000Net Income available600,000250,000to Ordinary SharesGross Dividend500,000200,000Market Price per shareMarket value of Debts 3,000,000Annual Growth rate3.002.001,500,000129610%of DividendGross Interest yield10%119%NOTE: The corporation tax rate is 506. Debts are currently quoted at GHC 100 per block.b. Explain why the Market Value Approach of calculating WACC is preferred to theBook Value Approachc. What are the uses of Weighted Average Cost of Capital?

WACC is the avg. cost for the entity that arises due to external financing. It is computed based on…

a. 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 2,000,000 1,000,000 Shares (GHC 1.00) Net Income available 600,000 250,000 to Ordinary Shares 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 1296 1096 of Dividend Gross Interest yield 1096 1196 NOTE: The corporation tax rate is 50%6. Debts are currently quoted at GHC 100 per block. b. Explain why the Market Value Approach of calculating WACC is preferred to the Book Value Approach c. What are the uses of Weighted Average Cost of Capital?

a. 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 2,000,000 1,000,000 Shares (GHC 1.00) Net Income available 600,000 250,000 to Ordinary Shares 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 1296 1096 of Dividend Gross Interest yield 1096 1196 NOTE: The corporation tax rate is 50%6. Debts are currently quoted at GHC 100 per block. b. Explain why the Market Value Approach of calculating WACC is preferred to the Book Value Approach c. What are the uses of Weighted Average Cost of Capital?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter14: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 2STP

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