In the title ''...The company intends to finance the project by issuing £1 millions of 5% debentures at par and £1 million’s worth of ordinary shares....'', so when we calculate new weight of debt should we use this formula B2+£1000/(B2+£1000+B3+£1000)= (£4000+£1000)/(£4000+£1000+£16000+£1000)
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In the title ''...The company intends to finance the project by issuing £1 millions of 5% debentures at par and £1 million’s worth of ordinary shares....'', so when we calculate new weight of debt should we use this formula B2+£1000/(B2+£1000+B3+£1000)= (£4000+£1000)/(£4000+£1000+£16000+£1000)
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- Wavering Plc is trying to decide on what discount rate to use when appraising future capital investment options. It is currently financed by a mixture of debt and equity, detailed as follows: Book value £000s 1 million £1 ordinary shares 1,000 Retained earnings 1,5007500 8% Pref. Share of £100 each 75012,500 £100 6.4% irredeemable debentures 1,250 Mortgage at 10% interest rate (secured on premises) 250 The market price of ordinary shares is £3.00, and the debentures have a market price of £80. The company pays corporation tax at a rate of 30%. The current return on government securities is 5%, the average stock market rate of return is 9% and the company has a beta value of 1.6. The management is considering taking…Light Speed plc requires £1,500,000 to fund a new project. The firm expects to earn an EBIT of £200,000 p.a. in perpetuity. Assume the project does not affect the operating risk of the company. The company intends to finance the project by issuing £1 million of 5% debentures at par and £1 million's worth of ordinary shares. The current capital structure of the company is as follows: MV (£'000) Debt (riskless) Equity The corporation tax rate is 25%. There is no time lag between taxable flows and the tax payments or receipts arising from those flows. Assume the required return on the market portfolio is 18% and the risk-free rate is 6%. Ignore income tax. 5,000 Required Return (%) 15,000 6 18 Required: Evaluate how the change of capital structure affects the company value and dividends. You should clearly specify your choice of gearing model and comment on how different models/assumptions made would/would not affect the results.Light Speed plc requires £2,000,000 to fund a new project. The firm expects to earn an EBIT of £250,000 p.a. in perpetuity. Assume the project does not affect the operating risk of the company. The company intends to finance the project by issuing £1 million of 5% debentures at par and £1 million's worth of ordinary shares. The current capital structure of the company is as follows: MV (£'000) Debt (riskless) 4,000 16,000 Required Return (%) 5 Equity The corporation tax rate is 25%. There is no time lag between taxable flows and the tax payments or receipts arising from those flows. Assume the required return on the market portfolio is 15% and the risk-free rate is 5%. Ignore income tax. 15 Required: Evaluate how the change of capital structure affects the company value and dividends. You should clearly specify your choice of gearing model and comment on how different models/assumptions made would/would not affect
- Light Speed plc requires £2,000,000 to fund a new project. The firm expects to earn an EBIT of £250,000 p.a. in perpetuity. Assume the project does not affect the operating risk of the company. The company intends to finance the project by issuing £1 millions of 5% debentures at par and £1 million’s worth of ordinary shares. The current capital structure of the company is as follows: MV (£’000) Required Return (%) Debt (riskless) 4,000 5 Equity 16,000 15 The corporation tax rate is 25%. There is no time lag between taxable flows and the tax payments or receipts arising from those flows. Assume the required return on the market portfolio is 15% and the risk-free rate is 5%. Ignore income tax. Evaluate how the change of capital structure affects the company value and dividends.Underworld plc is a manufacturer of computer games. It is currently financed by a mixture of debt and equity as follows: Book value £000s 1 million £1 ordinary shares Retained earnings 1,000 1,978 1,000 10,000 £100 9.5% irredeemable debentures Loan repayable in 2025 at 16% fixed interest rate 250 The market price of ordinary shares is £3.35, and the debentures have a market price of £94. The company pays corporation tax at a rate of 20%. The current return on government securities is 4%, the average stock market rate of return is 8% and the company has a beta value of 1.25. An opportunity has arisen to acquire Freshco Limited, a small company operating in the same industry. It is forecast that Freshco Ltd will generate a cashflow of £300,000 in the first year following acquisition. This is forecast to increase by 10% a year for the next four years after which cash flows will decline to £350,000 for the next two years. Due to the dynamic, constantly changing nature of this sector, cash…Nelson Company's current liabilities are P50,000, its long-term liabilities are P150,000, and its working capital is P80,000. If Nelson Company's debt-to-equity ratio is 0.32, its total long-term assets must equal O P625,000 O P825,000 O P745,000 O P695.000 Hydro Cable wishes to calculate their return on assets (ROA). You know that the return on equity (ROE) is 12% and that the debt ratio is 40%. What is the ROA? 0 4.8% O 20% 0 7.2% O 12% Tech Manufacturing Company realized P15,000,000 in sales, with a cost of goods sold of P6,000,000, gross profit margin of 45% of net sales, operating expenses of P4,500,000, tax rate of 35%, and average total assets of P6,500,000. What is Tech's Return on Assets (ROA)? O 42.5% O 50% O 45% O 47.75%
- A firm has 4000m in balance sheet debt (book value is equal to market value in this case) and 1000m in capitalized leases. Market value of equity is 10000m. You can use book value of debt to approximate its market value. If you were to use this information in the calculation of WACC, what is Wd? O 40.00% O 28.57% O 33.33% O 50.00%Can you please answer this part c follow up question: c) Suppose the initial £90,000 is raised by borrowing at the risk-free interest rateinstead of issuing equity. What are the cash flows to equity and debt holders, andwhat is the initial value of the levered equity according to Modigliani and Miller’sPropositions? Is the company’s cost of equity the same as before? Overall, can thecompany raise the same amount of capital as before? Explain your reasoning.The Dynamic Group, a private equity firm headquartered in Miami, Florida (US), borrows £5,000,000 for one year at 7.35% interest. What is the dollar cost of this debt if the pound depreciates from $2.0260/E to $1.9310/€ over the year? O 2.32% O2.58% O2.85% O 2.05%
- 2. A company has share capital of Kshs 20 million and is planning to invest an additional fund of Kshs 16,000,000 towards its expansion programme. Suggest the best option from the following, from a tax point of view: 1. To issue share capital of Kshs 16,000,000. 2. To borrow Kshs 4,000,000 @ 18% pa and to issue debentures of Kshs 4,000,000 @ 11% pa and the balance amount be collected by issuing shares in the public. 3. To issue debentures for Kshs 10,000,000 @ 11% pa and the balance be collected by issuing shares in the public. 4. Rate of return is 30% before paying any interest and tax. Rate of tax is 30%Tech Corp had gross sales of $9 million and total ex- of $8.5 million. Assume that Tech wants to penses undertake a capital investment of $1 million. What is the minimum amount of bonds it would have to issue to do so? Assume that Tech pays out $300,000 in dividends. Now what is the minimum amount it would have to borrow?Your firm is considering issuing one-year debt and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of debt: PV (interest tax shield, in $ million) 0 $80 million $90 million $50 million $2 million 0.01 0.00% 10 0.70 0.00% Debt Level (in $ million) 30 50 0.90 1.00% 1.15 2.00% 70 1.30 7.00% 90 1.50 16.00% 110 1.70 Probability of Financial Distress Suppose the firm has a beta of zero, so that the appropriate discount rate for financial distress costs is the risk-free rate of 5%. Which level of debt above is optimal if, in the event of distress, the firm will have distress costs equal to $2 million? 31.00%