S. ALAM group financed using the following weights: 35% long term debt, 15% preferred stock and 40% commonstock 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%.I1. Eleven percent (annual dividend) preferred stock having a par value of tk. 100 can be sold for tk. 85. Anadditional fee of tk. 5 per share must be paid to the underwriters.II. The firm's common stock currently selling for tk. 55 per share. The dividend expected to be paid at the endof 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. Caleulate 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 ofcapital should be based on financing rubric in the problem (a).Cash flows Amra(Tk.)(12000)Cash flows BDcom (Tk.)(18000)7500Year16500-2900570055005500345900650055400-5300a. Calculate PB period and NPV and IRR of the projects and give a decision rule based on yourfindings of the projects

Calculation of Cost of Debt (Kd): Kd = 11% coupon rate Kd after tax = 11% (1-0.38) = 6.82%…

Answered: S. ALAM group financed using the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Gina Electronics Inc. has long-term bonds with a face value of $2M, the coupon rate on the bonds is 5% and the yield on the bonds is also 5%. The unlevered cost of equity is 12.5%, and the value of Sun's equity is $3.6M. The corporate tax rate is 40%. What is Gina's WACC?
A firm has a bank loan with a 10% interest rate. The firm also has in issue 8% preference shares trading at nominal value and has estimated that its cost of ordinary shares is 18%. The firm has a 30% tax rate. What is the weighted average cost of capital if the firm uses a capital structure comprising 50% debt and an even split between preference and ordinary shares?
The firm can raise an unlimited amount of debt by selling R1,000 par value, 8% coupon interest rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of R50 per bond would have to be given. The firm also must pay flotation costs of R50 per bond. Firm is in 40% tax bracket. Determine after tax cost of debt. A. 5.86% B. 5.48% C. 5.46% D. 5.55%
6
Corporate Finance Consider a company where the market value of debt and equity are 25% and 75%,respectively of total Enterprise Value. The company’s debt yields 200bps over the risk free interest rate of 5.25%. The company’s tax rate is 21%. The beta of the company’s stock is 1.2. Assuming the equity risk premium is 4.5%, what is the company’s after-tax WACC?
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. Bond 1 2 3 4 Coupon Rate Price Quote 5.1% 6.7 Cost of debt 6.6 5.9 104.86 113.62 112.17 101.41 Maturity 5 years 8 years 15.5 years 25 years % Face Value $ If the corporate tax rate is 24 percent, what is the aftertax cost of the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 59,000,000 54,000,000 74,000,000 81,000,000
Ruby's Corporation needs to raise up its capital to RM80 million to expand its business. It plans to issue 20 million shares with a market value of RM2.50 per share, and the remaining of 30 million will be a debt financing through bonds. The par value and market value of each bond is RM1,000. The bonds pay annual interest before tax of 6.7%. The equity beta of firm is 1.5. The yield on risk free investment is 3% per year and the equity risk premium is approximately at 12% per year. The firm pays taxation at the annual rate 30%. From the above information, you are required to calculate: i. the after -tax cost of debt. ii. the cost of firm's equity. iii. the weighted average cost of capital based on your answers in part (i) and (ii).
Consider the following information for Abracadabra of America . Debt $84,000,000 book value outstanding The debt is trading at 86% of book value. The yield to maturity is 7% . Equity: 3.400,000 shares selling at $51 per share. Assume the expected rate of return on Abracadabra's stock is 16% . Taxes: Abracadabra's marginal tax rate is T0.21. You want to include financing in your valuation decision. Calculate the rate that you would use (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) answer
.The capital structure for Jebat Sdn Bhd is provided here: Capital structure RM’000 Bond 8,000 Preferred stock 5,000 Common stock 7,000 The firm is in a 30% tax bracket and plans to maintain the above capital structure in the future. The firms have a bond with RM1,000 par value, coupon interest rate of 12% and the floatation cost of 4% of the RM1,350 market price. The bond matures in 10 years. The preferred stock paying a RM10 dividend. If a new issue is offered, floatation cost will be 14% of the current price of RM195. The common stock price is RM32.80. The company’s executive anticipates a dividend constant growth rate of 7% and dividend for last year was RM2.80. If new stock is issue, RM12 will be charged as floatation cost. a. Assuming Jebat Sdn Bhd is trying to decide whether to revise its target capital structure. Currently it targets 60-40 mix of debt and equity but it is considering a target capital structure with 70% of debt. With the assumption that…

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