Pearl white berhad is considering Project with following cost and rate of return: Cost (RM) 3,000 5,000 Project 1 2 3 4 Long term debt: 3,000 2,000 Pearl White estimate that is it can issue bonds that have a maturity period of 10 years with a face value of RM1,000. The coupon rate for the bonds is 10% and is sold at the price of RM950. The corporate tax is 30%. Preference Shares: The company can issue preference shares that pays a constant dividend of RM5.00 per year at RM49.00 per share. Ordinary Shares: Currently, the ordinary shares of the company sell for RM36.00 per share. The next expected dividend is RM3.50 and the dividend is expected to grow at a constant rate of 6% per year. Source of capital Long term-term debt Expected Rate of return 16.00% 15.00% 13.75% 12.50% A firm has determined its optimal capital structure which is composed of the following sources and percentage of financing. Preferred stock Common stock equity Percentage of financing 15% 10% 75% COMPUTE: i) Using the approximation method, compute the firm's after-tax cost of debt. ii) Compute the firm's cost of preferred share iii) Compute the firm weighted average cost of capital (WACC) iv) Compute the firm of common share

Pearl white berhad is considering Project with following cost and rate of return: Cost (RM) 3,000 5,000 Project 1 2 3 4 Long term debt: 3,000 2,000 Pearl White estimate that is it can issue bonds that have a maturity period of 10 years with a face value of RM1,000. The coupon rate for the bonds is 10% and is sold at the price of RM950. The corporate tax is 30%. Preference Shares: The company can issue preference shares that pays a constant dividend of RM5.00 per year at RM49.00 per share. Ordinary Shares: Currently, the ordinary shares of the company sell for RM36.00 per share. The next expected dividend is RM3.50 and the dividend is expected to grow at a constant rate of 6% per year. Source of capital Long term-term debt Expected Rate of return 16.00% 15.00% 13.75% 12.50% A firm has determined its optimal capital structure which is composed of the following sources and percentage of financing. Preferred stock Common stock equity Percentage of financing 15% 10% 75% COMPUTE: i) Using the approximation method, compute the firm's after-tax cost of debt. ii) Compute the firm's cost of preferred share iii) Compute the firm weighted average cost of capital (WACC) iv) Compute the firm of common share

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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A company has an obligation to pay 2,000,000€ in four years. The financial manager of the company wants to build a portfolio of bonds so that, whether interest rates rise or fall, the portfolio can pay off the abovementioned obligation. Suppose only the three following bonds are available to be chosen: - Coupon bonds with a face value of 1,000€ that mature in 6 years and pay an annual coupon of 6%. - Zero-coupon bonds with a maturity value of 1,000€ that mature in 3 years. - Coupon bonds with a face value of 1,000€, annual coupon of 7% that is paid semiannually and maturity in two years and a half. Determine the exact composition of the portfolio of bonds that guarantees the payment of 2,000,000€ in four years setting a proportion of 20% for zero-coupon bonds and assuming an annual effective yield to maturity of 5%
None
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Your client wishes you to investigate a biotechnology company with the following balance sheet and details (below): Long-term debt $ Bonds: Par $100, coupon rate 7% p.a., 3 years to maturity 10,000,000 Equity Preference shares 8,000,000 Ordinary shares 18,000,000 Total 36,000,000 Notes: The company’s bank has advised that the interest rate on any new debt finance provided for the projects would be 6% p.a. if the debt issue is of similar risk and of the same time to maturity and coupon rate. There are currently 1,000,000 preference shares on issue, which pay a dividend of $0.85 per share. The preference shares currently sell for $5.69. The company’s existing 5,000,000 ordinary shares currently sell for $2.53 each. You have identified that the company has recently paid a $0.45 dividend. Historically, dividends have increased at an annual rate of 2% p.a. and are expected to continue to do so in the future. The company’s tax rate is 30%. Your client wishes to understand, with the use of…
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Baghiben
(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 14 percent and a maturity of 10 years. The investors require a rate of return of 9 percent. a. Compute the market value of the bonds b. What will the net price be if flotation costs are 10.5 percent of the market price? c. How many bonds will the firm have to issue to receive the needed funds? d. What is the firm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 21 percent? e. Rework the problem as follows: Assume a coupon rate of 8 percent. f. What effect does changing the coupon rate have on the firm's after-tax cost of capital? Why is there a change? GUD a. If the bond's annual coupon rate is 14%, what is the market value of the bond? (Round to the nearest cent.) b. What will the net price be if flotation costs are 10.5 percent of the market price? (Round to…
Shoprite Holding Ltd is the largest supermarket retailer on the African continent with more than 2 934 outlets. The company intends to raise R30 million to purchase a fleet of trucks to transport goods from various stores. The company will finance a fleet of trucks as follows:Debt (30%): The company will sell 5-year, 8% (paid quarterly) coupon bonds, each with a par value of R1 000 that could be sold at a premium of R50 with a flotation costs of 2.5% per bond. Ordinary shares (55%): The firm’s ordinary shares are currently selling for R50 per share. The dividend expected to be paid at the end of the coming year (2021) is R4. Its dividend payments per share in each of the past five years are shown in the table below: Year Dividend 2020. R3.75 2019 R3.50 2018 R3.30 2017. R3.15 2016. R2.85 It is expected that to attract buyers, new ordinary share must be under-priced by 10% per share and the firm must also pay R3…
Calculate the cost of capital for a bond that has a $1,000 par value and a contract or coupon interest rate of 11%. Interest payments are $55 and paid semi-annually. The bond has a current market value of $1,000 and will mature in 20 years. The firm's marginal tax rate is 30% a. 11% b. 10.7% c. 7.7% d. 30%

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