Osborne Construction currently has the following capital structure: Debt: S20,500,000 paying 9.5% coupon bonds outstanding with 15 years to maturity, an annual before-tax yield to maturity of 8% on a new issue. The bonds currently sell for $1,125 per $1,000 face value. Ordinary Shares: 100,000 shares outstanding currently selling for $45 per share. The company just paid a S3.50 dividend per share and is experiencing a 5% growth rate in dividends, which it expects to continue indefinitely. (Note: The firm's marginal tax rate is 30%.) Required: a) Calculate the current total market value of the company. (1.5 marks) b) Calculate the capital structure of the company. (1 marks) c) Calculate the weighted average cost of capital (WACC) for the firm. (1.5 marks) d) Discuss the significance of calculating WACC for this company. (3 marks)

Osborne Construction currently has the following capital structure: Debt: S20,500,000 paying 9.5% coupon bonds outstanding with 15 years to maturity, an annual before-tax yield to maturity of 8% on a new issue. The bonds currently sell for $1,125 per $1,000 face value. Ordinary Shares: 100,000 shares outstanding currently selling for $45 per share. The company just paid a S3.50 dividend per share and is experiencing a 5% growth rate in dividends, which it expects to continue indefinitely. (Note: The firm's marginal tax rate is 30%.) Required: a) Calculate the current total market value of the company. (1.5 marks) b) Calculate the capital structure of the company. (1 marks) c) Calculate the weighted average cost of capital (WACC) for the firm. (1.5 marks) d) Discuss the significance of calculating WACC for this company. (3 marks)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Osborne Construction currently has the following capital structure: Debt: $20,500,000 paying 9.5% coupon
bonds outstanding with 15 years to maturity, an annual before-tax yield to maturity of 8% on a new issue.
The bonds currently sell for $1,125 per $1,000 face value. Ordinary Shares: 100,000 shares outstanding
currently selling for $45 per share. The company just paid a S3.50 dividend per share and is experiencing a
5% growth rate in dividends, which it expects to continue indefinitely. (Note: The firm's marginal tax rate is
30%.) Required: a) Calculate the current total market value of the company. (1.5 marks) b) Calculate the
capital structure of the company. (1 marks) c) Calculate the weighted average cost of capital (WACC) for the
firm. (1.5 marks) d) Discuss the significance of calculating WACC for this company. (3 marks)

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