Reference is made to the 2022 Balance Sheet of Tram-Ropes limited. Tram-Ropes Limited Balance Sheet 2022 Cash 1,000,000.00 Accounts Payable 8,000,000.00 Acc. Receivable 12,000,000.00 Notes Payable 8,500,000.00 Marketable securities 3,000,000.00 Long-term Debt 20,000,000.00 Inventories 7,500,000.00 Common stock 7,500,000.00 Fixed Assets 26,500,000.00 Preferred Stock 6,000,000.00 Total Assets 50,000,000.00 Total Liabilities and Equity 50,000,000.00 Additional Information: i. The Long-Term debt consists of 8% annual coupon bonds, with 15 years to maturity and are currently selling for 95% of par. ii. The company’s common shares which have a book value of $20 per share are currently selling at $25 per share. PREPARED BY THE CI, MGMT2023 4 iii. Preferred shares have a book value of $100 per share. These shares are currently selling at $120 per share and pays dividends of 6% per annum on book value. iv. The dividend growth rate is expected to be 3%, and dividend for 2023 is projected to be $5.00 per share. v. The Company’s Tax rate is 30%. Required: Determine the following for Tram-Ropes Limited: A. Total Market value of the firm’s capital structure B. After-tax Cost of Debt C. Cost of Common Stock D. Cost of Preferred Stock E. WACC
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Reference is made to the 2022
Tram-Ropes Limited Balance Sheet 2022
Cash 1,000,000.00 Accounts Payable 8,000,000.00
Acc. Receivable 12,000,000.00 Notes Payable 8,500,000.00
Marketable securities 3,000,000.00 Long-term Debt 20,000,000.00
Inventories 7,500,000.00 Common stock 7,500,000.00
Fixed Assets 26,500,000.00 Preferred Stock 6,000,000.00
Total Assets 50,000,000.00 Total Liabilities and Equity 50,000,000.00
Additional Information:
i. The Long-Term debt consists of 8% annual coupon bonds, with
15 years to maturity and are currently selling for 95% of
par.
ii. The company’s common shares which have a book value of $20
per share are currently selling at $25 per share.
PREPARED BY THE CI, MGMT2023 4
iii.
shares are currently selling at $120 per share and pays
dividends of 6% per annum on book value.
iv. The
for 2023 is projected to be $5.00 per share.
v. The Company’s Tax rate is 30%.
Required:
Determine the following for Tram-Ropes Limited:
A. Total Market value of the firm’s capital structure
B. After-tax Cost of Debt
C. Cost of Common Stock
D. Cost of Preferred Stock
E. WACC
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