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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Transcribed Image Text:DEVCON INDUSTRIES LIMITED
Income Statement
For the years ended Dec. 31, 2018 and
2019
2018
2019
s000's
so00's
Sales
900000
1125000
Cost of Goods Sold
300000
306600
Gross Profit
600000
818400
Selling and Administrative Expenses
150000
156000
Depreciation Expense
54000
57000
Advertising Expenses
18000
21000
Earnings Before Interest and Taxes
Interest Expense
378000
584400
3000
3000
Taxable Income
375000
581400
Taxation (35%)
131250
203490
Net Income
243750
377910
Dividends (40%)
97500
151164
Addition to Retained Earnings
146250
226746
Additional Information
Share Price
21
27.3
Ordinary Shares Outstanding
120000000
144000000
DEVCON INDUSTRIES
LIMITED
Statement of Financial
Position
As at Dec. 31, 2018 and 2019
2019
s000's
ASSETS
2018
LIABILITIES & EQUITY
2018
2019
Current Assets
so00's
Current Liabilities
so00's
s000's
Inventories
264000
276000
Accounts Payables
Notes Payables
138000
114000
Accounts Receivables
294000
330000
150900
132654
Cash and Equivalents
210900
270000
288900
246654
768900
876000
Non-current Liabilities
120000
90000
Total Liabilities
408900
336654
Net Fixed Assets
630600
690000
Equity
Common Stock
264000
276000
Retained Earnings
726600
953346
Total Equity
990600
1229346
Total Assets
1399500
1566000
Total Liabilities & Equity
1399500
1566000
Transcribed Image Text:Having successfully issued their preference shares, DEVCON
Industries is seeking to determine its Weighted Average Cost of
Capital, so that it can be used as the company's required return in
evaluating upcoming capital projects.
financial
Utilizing information from DEVCON Industries'
statements, presented on page 1, together with current information,
the company has the following capital structure:
Debt:
Bonds outstanding has a face value of $90,000,000,
currently selling at 98% of par. The coupon rate on
these bonds is 9% paid semi-annually and there is 12
years left to maturity. (Hint: you can use the lowest
multiple of $1,000 for the YTM calculation only)
Common stock:
144,000,000 shares of common stock outstanding
with a market price of $27.30.
Preferred stock:
100,000,000 shares of preferred shares
outstanding with a market price of $60.
The annual dividend is $4.50.
Additional Information:
- The Company's tax rate is 35%.
- The current risk free rate is 3.50%; The market risk premium is 8%.
- The Company's beta is 1.2.
Required: Calculate the Weighted Average Cost of Capital for
DEVCON Industries Limited.
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