S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% common stock equity, and 10% retained earnings. The firm’s corporate tax rate is 38% I. The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-value bond paying at an 11% coupon rate, flotation cost of per bond is 3.75% and under pricing by 2%. II. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An additional fee of tk. 5 per share must be paid to the underwriters. III. The firm’s common stock currently selling for tk. 55 per share. The dividend expected to be paid at the end of the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover, underwriting fees per share Tk. 7. a. Calculate the WACC of the project and implications of investment decisions. b.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost of capital should be based on financing rubric in the problem (a). Year Cash flows Amra(Tk.) Cash flows BDcom (Tk.) 0 (12000) (18000) 1 6500 7500 2 -2900 5500 3 5700 5500 4 5900 6500 5 5400 -5300 a. Calculate PB period and NPV and IRR of the projects and give a decision rule based on your findings of the projects
S. ALAM group financed using the following weights: 35% long term debt, 15%
stock equity, and 10%
I. The firm can sell for tk. 990 an 8 years bond, Tk. 1000 par-
flotation cost of per bond is 3.75% and under pricing by 2%.
II. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. An
additional fee of tk. 5 per share must be paid to the underwriters.
III. The firm’s common stock currently selling for tk. 55 per share. The dividend expected to be paid at the end
of the year is Tk. 5.35 per share. Dividends have been growing at an annual rate of 8.5%. Moreover,
underwriting fees per share Tk. 7.
a. Calculate the WACC of the project and implications of investment decisions.
b.The following two mutually exclusive projects have cash flows for its 5 years lifetime and cost of
capital should be based on financing rubric in the problem (a).
Year Cash flows Amra(Tk.) Cash flows BDcom (Tk.)
0 (12000) (18000)
1 6500 7500
2 -2900 5500
3 5700 5500
4 5900 6500
5 5400 -5300
a. Calculate PB period and NPV and
findings of the projects
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