Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing projects that are similar to those that already exist. The firm's current capital structure, in terms of market value, includes 30 percent corporate bond, 10 percent irredeemable loan notes, 10 percent preference shares and 50 percent ordinary shares. The firm's corporate bond has an average yield to maturity of 8.3 percent. DWVI also has an irredeemable loan notes currently trading at GHc 40 ex interest an interest rate of five (5) percent. Its preference shares have a Gllc 70 par value, an 8 percent dividend, and are currently selling for GHc 76 per share. DWVI's beta is 1.05, return on riskless asset is 4 percent and the return on the GSE (the market proxy) is 11.4 percent. The industry is in the 40 percent marginal tax bracket. Required: 1) DWVI is contemplating a major investment that is expected to increase both its operating and financial l Its new capital structure will contain 40 percent corporate bond, 10 percent irredeemable loan notes, 10 percent preference shares and 40 percent ordinary shares. As a result of the proposed investment, the firm's average yield to maturity on the corporate bond is expected to increase to 9 percent, the market value or selling price of the preference shares is expected to fall to their GHc 70 and its beta is expected to rise to 1.15. What effect will this investment have on SVI's after-tax WACC? 2) Explain the effect of the fall in selling price of the preference shares on the DWVI's W ACC
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Dynamic World Vista Industries (DWVI) wishes to estimate its cost of capital for use in analyzing projects that are similar to those that already exist. The firm's current capital structure, in terms of market value, includes 30 percent corporate bond, 10 percent irredeemable loan notes, 10 percent
The firm's corporate bond has an average yield to maturity of 8.3 percent. DWVI also has an irredeemable loan notes currently trading at GHc 40 ex interest an interest rate of five (5) percent. Its preference shares have a Gllc 70 par value, an 8 percent dividend, and are currently selling for GHc 76 per share. DWVI's beta is 1.05,
Required:
1) DWVI is contemplating a major investment that is expected to increase both its operating and financial l Its new capital structure will contain 40 percent corporate bond, 10 percent irredeemable loan notes, 10 percent preference shares and 40 percent ordinary shares. As a result of the proposed investment, the firm's average yield to maturity on the corporate bond is expected to increase to 9 percent, the market value or selling price of the preference shares is expected to fall to their GHc 70 and its beta is expected to rise to 1.15. What effect will this investment have on SVI's after-tax WACC?
2) Explain the effect of the fall in selling price of the preference shares on the DWVI's W ACC
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