Big Machinary Ltd. currently has the following capital structure: Ordinary shares: 25,000 outstanding ordinary shares. The firm just paid a $5.50 dividend per share in the current financial year. The firm is maintaining 2.5% annual growth rate in dividend indefinitely. Preferred shares: 20 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 15%. Debt: $1,500,000 par value of uncallable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8%. The bond issue has face value of $1,000 and will mature in 5 years. Company tax rate is 30%. Required: Complete the following tasks: Calculate the current price of the ordinary share if the average return of the shares in the same industry is 7%? (2 marks)
Big Machinary Ltd. currently has the following capital structure: Ordinary shares: 25,000 outstanding ordinary shares. The firm just paid a $5.50 dividend per share in the current financial year. The firm is maintaining 2.5% annual growth rate in dividend indefinitely. Preferred shares: 20 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 15%. Debt: $1,500,000 par value of uncallable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8%. The bond issue has face value of $1,000 and will mature in 5 years. Company tax rate is 30%. Required: Complete the following tasks: Calculate the current price of the ordinary share if the average return of the shares in the same industry is 7%? (2 marks)
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
Related questions
Question
Big Machinary Ltd. currently has the following capital structure:
Ordinary shares: 25,000 outstanding ordinary shares. The firm just paid a $5.50 dividend per share in the current financial year. The firm is maintaining 2.5% annual growth rate in dividend indefinitely.
Debt: $1,500,000 par
Company tax rate is 30%.
Required: Complete the following tasks:
- Calculate the current price of the ordinary share if the average return of the shares in the same industry is 7%? (2 marks)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education