Report inc as a shipping company with securities listed on the American stock exchange. The company has the following capital structure : Equity Common shares ($1 per share nominal value) Reserves $m $m 40 85. 125 Debt 5.5% unsecured bond ($100 per bond nominal value 55 20 year secured bank loan. 25 5%preference shares ($1 per share nominal value). 30 Total equity and debt 110 235 The common share have a beta of 1.2. The risk -free rate is 3% and the return on the market portfolio is 8%. The current market price of common shares is $5.20 per share. The unsecured bind is 20 year-term bond and was issued 8 years ago . The bond an annual coupon of 5.5%. The current yield to maturity is 6.2% , and the current market price of the bond is $93.82. The bank loan is secured agains a warehouse facility and has a fixed intrest rate of 4.5% per year. The loan was issued 10 years ago . The 5% preference share have an ex-div market value of $0.68 per share. The shares are irredeemable. Ignore text. A-calculate the following values of Rapport Inc: I.The current weighted vaargeul cost of capital, using market values where possible; Ii. An appropriate discount rate for project with a beta of 1.7. B- explain the theorised relation between risk and return in finance . In doing so,discuss how and why the cost of capital differs across the secures of finance used by Rapport InC. C- discuss whether a change in the capital structure could reduce point InC’s overall cost of capital and/or increase the value of the company.
Report inc as a shipping company with securities listed on the American stock exchange. The company has the following capital structure :
Equity
Common shares ($1 per share nominal value)
Reserves $m $m
40
85. 125
Debt
5.5% unsecured bond ($100 per bond nominal value 55
20 year secured bank loan. 25
5%preference shares ($1 per share nominal value). 30
Total equity and debt 110
235
The common share have a beta of 1.2. The risk -free rate is 3% and the return on the market portfolio is 8%. The current market price of common shares is $5.20 per share.
The unsecured bind is 20 year-term bond and was issued 8 years ago . The bond an annual coupon of 5.5%. The current yield to maturity is 6.2% , and the current market price of the bond is $93.82.
The bank loan is secured agains a warehouse facility and has a fixed intrest rate of 4.5% per year. The loan was issued 10 years ago . The 5%
A-calculate the following values of Rapport Inc:
I.The current weighted vaargeul cost of capital, using market values where possible;
Ii. An appropriate discount rate for project with a beta of 1.7.
B- explain the theorised relation between risk and return in finance . In doing so,discuss how and why the cost of capital differs across the secures of finance used by Rapport InC.
C- discuss whether a change in the capital structure could reduce point InC’s overall cost of capital and/or increase the value of the company.
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