Aquafin LLC is a company formed in the year 2000 and listed in the Muscat Securities Exchange. The company has primarily engaged in the manufacture of water purifiers and its accessories. Recently, the company has expanded its operation by taking a forward integration move. Adding on, the company is planning to start two more factories in Oman and the Senior manager (finance) Mr. Miyan Ahmed has asked to identify the possible sources of funds for the same. As per the estimate submitted by SMA team (Strategic Management Accounting team), the company requires 100,000 OMR to proceed with the proposed investments. By considering facts and figures given below you are asked to evaluate the Proposed Capital structure by answering the given questions. Abstract of the Capital structure developed by Mr. Miyan Ahmed, ACCA Source of capital Amount in OMR Equity share capital( 5000 shares at OMR 10 each) 50,000 Reserve and surplus 10,0000 12% preference shares 20,000 9 % debentures 20,000 Total fund required 100,0000 Additional Information The market price of equity share is estimated as OMR 50 and it is expected that the company will pay a dividend of OMR 5 per share. The estimated growth rate is 5% and the Income tax rate is 20%. Question Calculate the specific cost of equity and debt based on the given data?
Aquafin LLC is a company formed in the year 2000 and listed in the Muscat Securities Exchange. The company has primarily engaged in the manufacture of water purifiers and its accessories. Recently, the company has expanded its operation by taking a forward integration move. Adding on, the company is planning to start two more factories in Oman and the Senior manager (finance) Mr. Miyan Ahmed has asked to identify the possible sources of funds for the same. As per the estimate submitted by SMA team (Strategic
Abstract of the Capital structure developed by Mr. Miyan Ahmed, ACCA
|
Source of capital |
Amount in OMR |
|
Equity share capital( 5000 shares at OMR 10 each) |
50,000 |
|
Reserve and surplus |
10,0000 |
|
12% |
20,000 |
|
9 % debentures |
20,000 |
|
Total fund required |
100,0000 |
Additional Information
The market price of equity share is estimated as OMR 50 and it is expected that the company will pay a dividend of OMR 5 per share. The estimated growth rate is 5% and the Income tax rate is 20%.
Question
Calculate the specific
None of these
Ke = 15% Kd = 7.2
Ke = 10% Kd = 14%
Ke = 15%, Kd = 9%
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