Stargate Nation Sdn Bhd operates a very successful manufacturing plant in Batu Kawan Industrial Area. The company needs to raise funds for its planned expansion into the Northern Part of Malaysia. The firm’s balance sheet at the close of 2021 appeared as follows: Cash Accounts Receivable Inventories Net Plant and Equipment Total Assets RM 2,210,000 4,380,000 11,540,000 32,575,000 RM 50,705,000 Long-term Debt (Bond) Common Equity Total Debt and Equity RM 18,341,000 32,364,000 RM 50,705,000 The company’s management estimates that the market requires 16 percent return on its common stock, the firm’s bonds command a yield to maturity of 8.5 percent, and the firm faces a tax rate of 33 percent. At the end of the previous year Stargate Nation’s common stock was selling for a price 1.6 times its book value, and its bonds were trading near their par value. Explain the current capital structure of Stargate Nation Sdn Bhd. Calculate the cost of capital for Stargate Nation Sdn Bhd. If Stargate Nation Sdn Bhd stock price fall to 0.7 times book value and the cost of equity fell to 13.5 percent, calculate the firm’s weighted average cost of capital (assume the cost of debt and tax rate do not change).
Stargate Nation Sdn Bhd operates a very successful manufacturing plant in Batu Kawan Industrial Area. The company needs to raise funds for its planned expansion into the Northern Part of Malaysia. The firm’s balance sheet at the close of 2021 appeared as follows: Cash Accounts Receivable Inventories Net Plant and Equipment Total Assets RM 2,210,000 4,380,000 11,540,000 32,575,000 RM 50,705,000 Long-term Debt (Bond) Common Equity Total Debt and Equity RM 18,341,000 32,364,000 RM 50,705,000 The company’s management estimates that the market requires 16 percent return on its common stock, the firm’s bonds command a yield to maturity of 8.5 percent, and the firm faces a tax rate of 33 percent. At the end of the previous year Stargate Nation’s common stock was selling for a price 1.6 times its book value, and its bonds were trading near their par value. Explain the current capital structure of Stargate Nation Sdn Bhd. Calculate the cost of capital for Stargate Nation Sdn Bhd. If Stargate Nation Sdn Bhd stock price fall to 0.7 times book value and the cost of equity fell to 13.5 percent, calculate the firm’s weighted average cost of capital (assume the cost of debt and tax rate do not change).
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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Stargate Nation Sdn Bhd operates a very successful manufacturing plant in Batu Kawan Industrial Area. The company needs to raise funds for its planned expansion into the Northern Part of Malaysia. The firm’s
|
Cash Accounts Receivable Inventories Net Plant and Equipment
Total Assets |
RM 2,210,000
4,380,000 11,540,000
32,575,000
RM 50,705,000 |
Long-term Debt (Bond) Common Equity
Total Debt and Equity |
RM 18,341,000
32,364,000
RM 50,705,000
|
The company’s management estimates that the market requires 16 percent return on its common stock, the firm’s bonds command a yield to maturity of 8.5 percent, and the firm faces a tax rate of 33 percent. At the end of the previous year Stargate Nation’s common stock was selling for a price 1.6 times its book
- Explain the current capital structure of Stargate Nation Sdn Bhd.
- Calculate the cost of capital for Stargate Nation Sdn Bhd.
- If Stargate Nation Sdn Bhd stock price fall to 0.7 times book value and the
cost of equity fell to 13.5 percent, calculate the firm’s weighted average cost of capital (assume the cost of debt and tax rate do not change).
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