Accounting. The bidvest group limited headquartered in cape town The Bidvest Group Limited headquartered in CapeTown has 50,000 shares valued at R820k and debtof R160k. The interest rate is 10% and the currentprincipal payment is 25%. It intends to expand theoperation and expects EBIT of R210K to increaseby half (50%). It can raise the required R300K byeither borrowing or selling new shares. BidvestGroup can issue 15k shares at a price of R20 each.Debt levels can be raised to 12% with a principalpayment of 5%. Determine the following:ROE with the increased debt.

Given that the current EBIT is R210,000 and it is expected to increase by 50%:New EBIT=Current…

Answered: The Bidvest Group Limited headquartered…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 20P

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Zola Sdn Bhd wants to develop new product through research and development whichrequires additional financing of RM2 million. Zola Sdn Bhd is considering selling one security to raise the needed funds from the following options: i. To sell bonds at RM950,14 percent coupon rate with maturity of 15 years. The underwriting fee is 8 percent of market price. The tax rate for the company is 35 percent. ii. To sell preferred shares at RM85 with 9 percent dividend and RM5 for issuing cost. iii. To issue new common shares at RM23 per share and RM1.20 for floatation cost. The company has just paid RM0.80 in dividend and the earnings is expected to grow at 9 percent annually Calculate the after-tax cost of: i) Bond ii) Preferred shares iii) Common shares iv) Which source should the firm choose? Why?
Zola Sdn Bhd wants to develop new product through research and development whichrequires additional financing of RM2 million. Zola Sdn Bhd is considering selling one security to raise the needed funds from the following options: i. To sell bonds at RM950,14 percent coupon rate with maturity of 15 years. The underwriting fee is 8 percent of market price. The tax rate for the company is 35 percent. ii. To sell preferred shares at RM85 with 9 percent dividend and RM5 for issuing cost. iii. To issue new common shares at RM23 per share and RM1.20 for floatation cost. The company has just paid RM0.80 in dividend and the earnings is expected to grow at 9 percent annually Calculate the after-tax cost of: i) Bond ii) Preferred shares iii) Common shares iv) Which source should the firm choose? Why? Please use YTM method to calculate the bond.
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Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.4 (given its target capital structure). Vandell has $10.82 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow FCF0 is $2 million per year and is expected to grow at a constant rate of 5% a year. Vandell pays a 40% combined federal and state tax rate. The risk-free rate of interest is 5% and the market risk premium is 6%. Hastings’s first step is to estimate the current intrinsic value of Vandell. What are Vandell’s cost of equity and weighted average cost of capital? What is Vandell’s intrinsic value of operations? (Hint: Use the free cash flow corporate valuation model from Chapter 7.) What is the current intrinsic value of Vandell’s stock
Brown Mines needs $1.2 billion of new equity.Market price is $25.Brown Mines decides to raise addtional funds by offering the right to buy 4 new shares for 16 at $12 per share.WIth 100% subscription,what is value of each right? A.$10.4 B.8 C.16 D.9.6
XYZ Company has currently and equity share capital of Rs. 40 lakhs consisting of 40,000 equity shares of Rs. 100 each. The management is planning to raise another Rs. 30 lakhs to finance a major programme of expansion through one of the two possible financing plans. The options are:A: Entirely through equity sharesB: Rs. 15 lakhs in equity shares of Rs. 100 each and the balance in 8% debentures.The company’s EBIT will be Rs. 15 lakhs. Assuming corporate tax of 50%. Determine the EPS and financial leverage.

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