Christopher Joseph owner of Joseph’s Bottle Company Limited is considering opening a new factory to manufacture a new bottle product at a cost of $3.0 million. During the last 5years, the company has had 3 million shares in issue. The current market price of these shares (at 31 December 2018) is $1.45 ex-dividend. The company pays only one dividend each year (on 31 December) and dividends for the last five years have been as follows: Year Dividend per share (cents) 2018 14.1 2017 14.1 2016 12.1 2015 11.6 2014 11.0 The company has in issue $1 million 7% debentures redeemable on31 December 2022 at par. The current market price of these debentures is $83.60 ex-interest, and the interest is payable in one amount each year on 31 December. The company also has outstanding a $500,000 bank loan repayable on 31 December 2027. The rate of interest on this loan is variable, being fixed at 3% above the bank's base rate which is currently 5%. Calculate the weighted average cost of capital (WACC) for Joseph’s Bottle Company ltd. as at 31 December 2018 Please advise the Mr Joseph on business risk and financial risk and the significance of each in for a future project.
Christopher Joseph owner of Joseph’s Bottle Company Limited is considering opening a new factory to manufacture a new bottle product at a cost of $3.0 million. During the last 5years, the company has had 3 million shares in issue. The current market price of these shares (at 31 December 2018) is $1.45 ex-dividend. The company pays only one dividend each year (on 31 December) and dividends for the last five years have been as follows: Year Dividend per share (cents) 2018 14.1 2017 14.1 2016 12.1 2015 11.6 2014 11.0 The company has in issue $1 million 7% debentures redeemable on31 December 2022 at par. The current market price of these debentures is $83.60 ex-interest, and the interest is payable in one amount each year on 31 December. The company also has outstanding a $500,000 bank loan repayable on 31 December 2027. The rate of interest on this loan is variable, being fixed at 3% above the bank's base rate which is currently 5%. Calculate the weighted average cost of capital (WACC) for Joseph’s Bottle Company ltd. as at 31 December 2018 Please advise the Mr Joseph on business risk and financial risk and the significance of each in for a future project.
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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Christopher Joseph owner of Joseph’s Bottle Company Limited is considering opening a new factory to manufacture a new bottle product at a cost of $3.0 million. During the last 5years, the company has had 3 million shares in issue. The current market price of these shares (at 31 December 2018) is $1.45 ex-dividend.
The company pays only one dividend each year (on 31 December) and dividends for the last five years have been as follows:
|
Year |
Dividend per share (cents) |
|
2018 |
14.1 |
|
2017 |
14.1 |
|
2016 |
12.1 |
|
2015 |
11.6 |
|
2014 |
11.0 |
The company has in issue $1 million 7% debentures redeemable on31 December 2022 at par. The current market price of these debentures is $83.60 ex-interest, and the interest is payable in one amount each year on 31 December. The company also has outstanding a $500,000 bank loan repayable on 31 December 2027. The rate of interest on this loan is variable, being fixed at 3% above the bank's base rate which is currently 5%.
- Calculate the weighted average cost of capital (WACC) for Joseph’s Bottle Company ltd. as at 31 December 2018
- Please advise the Mr Joseph on business risk and financial risk and the significance of each in for a future project.
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