(b) Angaza Ltd is in high growth sector. It has identified viable projects that can create value forthe firm which it can finance with internally generated funds. The firm raises Kshs.50 millionfrom shareholders and uses this cash to pay them Kshs.50 million in dividends. If dividend istaxed at 10% and capital gains are taxed at 5%, how much will the shareholders receive aftertaxes?

Calculation of shareholders net receipts in kshs: *In general, dividends shall be paid out of…

Angaza Ltd is in high growth sector. It has identified viable projects that can create value fo the firm which it can finance with internally generated funds. The firm raises Kshs.50 millio: from shareholders and uses this cash to pay them Kshs.50 million in dividends. If dividend i taxed at 10% and capital gains are taxed at 5%, how much will the shareholders receive afte taxes?

Angaza Ltd is in high growth sector. It has identified viable projects that can create value fo the firm which it can finance with internally generated funds. The firm raises Kshs.50 millio: from shareholders and uses this cash to pay them Kshs.50 million in dividends. If dividend i taxed at 10% and capital gains are taxed at 5%, how much will the shareholders receive afte taxes?

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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clacher plc and Holmes plc are two firms with identical prospects regarding their future cash flows. The cash flows are expected to remain constant forever into the future. The market assesses the prospects of the two companies and believes that there is a 30% probability that the cash flow will be £20,000 and a 70% probability it will be £40,000. The firms are the same in all respects except for their capital structures. Clacher is entirely financed by equity capital, while Holmes has perpetual riskless debt outstanding with an annual interest payment of £6,000. Clacher’s equity is valued at £200,000. The risk-free rate of return in the economy is 10%. There is no taxation, and there are no agency costs or bankruptcy costs. Assume that both firms are correctly priced by financial markets in accordance with the Modigliani and Miller theorem. What is the expected rate of return on equity for the two firms?
Please answer the question as in attached file asap. thanks
Clacher plc and Holmes plc are two firms with identical prospects regarding their future cash flows. The cash flows are expected to remain constant forever into the future. The market assesses the prospects of the two companies and believes that there is a 30% probability that the cash flow will be £20,000 and a 70% probability it will be £40,000. The firms are the same in all respects except for their capital structures. Clacher is entirely financed by equity capital, while Holmes has perpetual riskless debt outstanding with an annual interest payment of £6,000. Clacher's equity is valued at £200,000. The risk-free rate of return in the economy is 10%. There is no taxation, and there are no agency costs or bankruptcy costs. (a) Assume that both firms are correctly priced by financial markets in accordance with the Modigliani and Miller theorem. What is the expected rate of return on equity for the two firms? (Hint: you will need to calculate the expected cash flow for the firm and use…
Suppose that MNINK Industries’ capital structure features 63 percent equity, 8 percent preferred stock, and 29 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 11.40 percent, 9.30 percent, and 8.00 percent, respectively.What is MNINK’s WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your answer to 2 decimal places.)
Duke Inc. is considering to change its capital structure of a $1 million:$3 million debt-equity mix (in terms of market values), by taking out a $3 million loan which is used to pay a large dividend to shareholders. The firm’s tax rate is 40%. After the dividend has been paid, what will be the firm’s total equity value?
clacher plc and Holmes plc are two firms with identical prospects regarding their future cash flows. The cash flows are expected to remain constant forever into the future. The market assesses the prospects of the two companies and believes that there is a 30% probability that the cash flow will be £20,000 and a 70% probability it will be £40,000. The firms are the same in all respects except for their capital structures. Clacher is entirely financed by equity capital, while Holmes has perpetual riskless debt outstanding with an annual interest payment of £6,000. Clacher’s equity is valued at £200,000. The risk-free rate of return in the economy is 10%. There is no taxation, and there are no agency costs or bankruptcy costs.Discuss the view that capital structure is irrelevant to firm value.
e. Kecewa Berhad is planning a RM50,000 expansion. The expansion is to be financed by RM20,000 debt and RM30,000 common stock. The before-tax cost of debt is 9% and the cost of common stock is 14%. If the corporate tax is 40%. Determine the Weighted Average Cost of Capital (WACC) for Kecewa Berhad.
You are the financial manager of a competitive investment company in South Africa. You have been presented with two possible investments: Pink Limited and Purple Limited as shown below. You have been supplied with the following information regarding the two companies. Pink Limited Purple Limited Earnings before interest and tax R3 000 000 R4 000 000 Long term interest bearing debt R500 000 R800 000 Earnings attributable to shareholders R2 124 000 R2 822 400 Tax rate 28% 28% Share Capital R2 000 000 R5 000 000 Number of ordinary shares issued 200 000 400 000 Number of ordinary shares authorised 1 000 000 500 000 Current market price of the share R30 R20.00 Dividend per share R5 R3 As a financial manager you are very concerned about the dividend yield and dividend payout ratio as these…
Accounting problem.....
True/False: Discounting the FCF(Free Cash Flow) of the 100% equity firm with the WACC (Weighted Average Cost Capital)takes the tax shield into account.
Guam Motors is presently an all equity firm. It needs to raise $2.5m in additional funds. After raising its funds, it expects perpetual EBIT to be $600,000. The firm's unlevered cost of equity is 12% and its before tax cost of debt is 8%. 1) If there are no corporate taxes, under M-M theory what is the value of Guam Motors if it employs common stock to raise the needed funds? 2)If there are no corporate taxes and Guam Motors employs debt to raise 50% of the firm value, what is the cost of equity, the weighted average cost of capital and the value of the firm? 3) If there are no corporate taxes and M-M theory holds, will investors prefer levered firm to the unlevered firm? Why? 4)Will the presence of corporate taxes increase or decrease the firm value? Why? 5)Assume that corporate tax is 25%. What is the all equity value of Guam Motors? 6)If the corporate tax is 25% and Guam Motors employees same amount of debt as in 2) to raise part of the firm value, what is the cost of equity,the…
Ramos Berhad has the following capital structure which it considers optimal: Debt-30%, PS-18%, CS-52%. The Firm paid a dividend of RM2/share last year and its stock currently sells at RM80/share. Tax rate is 35% and investors expect earnings and dividends to grow at a constant rate of 12% in the future. New CS have a flotation cost of 10%. New PS would be sold at RM100/share with a dividend of RM9. Flotation cost is RM6/share. For Debt, it is a 9% irredeemable debt with a current value of RM1,100. Annual interest payment has just been made. What is the weighted average after-tax costs of capital of the company?

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