Madiba Ltd’s optimal capital structure calls for 35% debt and 65% equity. The after-tax cost of debt is 12%; its cost of ordinary shares funding from retained earnings is 14%; and its marginal tax rate is 28%. Madiba Ltd’s has the following investment opportunities: Supersonic: Cost = R 50 000; IRR = 11.90%. Telefunken: Cost = R100 000; IRR = 13.00% LG: Cost = R150 000; IRR = 14.50%. Sony: Cost = R200 000; IRR =15.70%. Madiba expects to have a net income of R250 000 and bases its dividend payment on the residual policy. How much would Madiba Ltd’s pay in dividends (after accepting all profitable projects) if it were to follows the residual theory of dividends?
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
QUESTION 4
Madiba Ltd’s optimal capital structure calls for 35% debt and 65% equity. The after-tax cost of debt is 12%; its cost of ordinary shares funding from
Supersonic: Cost = R 50 000;
Telefunken: Cost = R100 000; IRR = 13.00%
LG: Cost = R150 000; IRR = 14.50%.
Sony: Cost = R200 000; IRR =15.70%.
Madiba expects to have a net income of R250 000 and bases its dividend payment on the residual policy.
How much would Madiba Ltd’s pay in dividends (after accepting all profitable projects) if it were to follows the residual theory of dividends?
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