Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of an outstanding bond that pays annually 12% coupon rate with anannual before-tax yield to maturity of 10%. The bond issue has a face value of $1,000 and willmature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend pershare in the next financial year. The firm is maintaining a 3% annual growth rate in dividends, whichis expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with a face value of $100, paying fixedthe dividend rate of 14%.The company tax rate is 30%.Calculate the current value of the preferred share if the average return of the shares inthe same industry is 12%
Blooming Ltd. currently has the following capital structure:
Debt: $2,500,000 par value of an outstanding bond that pays annually 12% coupon rate with an
annual before-tax yield to maturity of 10%. The bond issue has a face value of $1,000 and will
mature in 25 years.
Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per
share in the next financial year. The firm is maintaining a 3% annual growth rate in dividends, which
is expected to continue indefinitely.
Preferred shares: 40 000 outstanding preferred shares with a face value of $100, paying fixed
the
The company tax rate is 30%.Calculate the current value of the
the same industry is 12%
Those shares which are prioritized over common shares at the time of payment of dividends but did not provide the ownership of the company to its holders are termed as the preferred shares.
Step by step
Solved in 2 steps with 1 images
