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

See similar textbooks

Similar questions

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.
Gravity Company needs to raise $49.5 million to fund its expansion plans. The company will sell shares at a price of $28.30 in a general cash offer and the company's underwriters will charge a spread of 6 percent. How many shares need to be sold?
You have a margin account and deposit Rs.90,000. Assuming the prevailing marginrequirement is 20%, commissions are ignored and D.G.K Cement stock is selling atRs.55 per share while Askari Cement stock is selling at Rs. 85 per share. You invest 40%of your investment in D.G.K cement while remaining is deposited in Askari cement.a. How many shares of each stock can you purchase using the maximum allowablemargin if you invest in both?b. What is your total and percentage profit (loss) if:1. the price of D.G.K Cement Rises to Rs.65 per share while Askari Cement stockrises to Rs. 97 per share?2. the price of D.G.K Cement reduces to Rs.42 per share while Askari Cementstock reduces to Rs. 76 per share?c. If you invest all money in D.G.K cement ONLY and the maintenance margin is 25%,to what price can D.G.K Cement stock fall before you will receive a margin call?d. If you invest all money in Askari cement ONLY and the maintenance margin is 25%,to what price can Askari cement stock fall before you…
Rock Industries has hired the investment banking firm to help for going public. Rock and investment bank agree that Rock's current value of equity is $75 million. Rock currently has 5 million shares outstanding and will issue 2 million new shares. Investment bank charges a 7% spread. What is the offer price based on this information? a. $10.93 b. $15.00 c. $14.59 d. $10.71
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $130.000 of debt at an interest rate of 11% and use the proceeds to repurchase 13,000 shares at $10 per share. Profits before interest are expected to be $118,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $130,000? (Do not round intermediete calculations. Round your answer to 2 decimal places.) Price-earnings ratio b. What is the ratio after it borrows? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price-earnings ratio
Bethesda Biosys issues an IPO on a best-efforts basis. The company's investment bank requires a spread of 18 percent of the selling price. The average selling price is expected to be $25 per share. Four million shares are issued. What are the net proceeds for the issuer? O $102 million O $92 million O $82 million O $100 million
Nile plc currently has 6,000,000 ordinary shares in issue, valued at $3 each, and the company has annual earnings equal to 25% of the market value of the shares. A one for four rights issue is proposed, at an issue price of $2.50. If the market continues to value the shares on a price/earnings ratio of 4, what would the value per share be if the new funds are expected to earn, as a percentage of the money raised: a) 20% b) 25% c) 30% How do these values in (a), (b) and (c) compare with the theoretical ex-rights price? Ignore issue costs
The Management of "Tanjung Uda Berhad" is planning a RM4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for RM$5 per share. The bonds can be issued with a 12% coupon rates. The firm's existing preference share pay dividends of RM$2 per share. The company's corporate income tax is 30%. The financial statement of Tanjung Uda Berhad is as follow:- Current Assets Fixed Assets Current Liabilities Bonds: (8.5%, RM1,000 par value) (9%, RM1,000 par Value) Preference Shares (RM$ 100 par value) Ordinary Shares (RM$ 2 par value) Retained Earnings Tanjung Uda Berhade Balance Sheet as at 31st December 2022 RM$ 2,000,000+ RM$ 8,000,000+ RM$ 10,000,000 RM$ 1,500,000 RM$ 4,000,000 RM$ 1,000,000+ RM$ 500,000+ RM$ 2,400,000+ RM$ 600,000+ RM$ 10,000,000+ Required: a) Calculate the WACC for the company without taking into consideration the expansion plan mentioned above, which means using the original Balance sheet…
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $170,000 of debt at an interest rate of 10% and use the proceeds to repurchase 17,000 shares at $10 per share. Profits before interest are expected to be $117,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $170,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the ratio after it borrows? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Please show the solution. Thank you. 1. The market value of Bato Company’s ordinary shares (book value: P65M) is estimated at P60M and the market value of its interest bearing debt (book value: P35M) is estimated at P40M. The average before tax yield on these liabilities is 15% per year. Income taxes are 40%. The company is expected to pay a dividend of P10 per share and the shares are selling at a price of P100 per share. The growth rate of dividend is projected to be 2.5% per year. What is the weighted average cost of capital (WACC) of the company as a whole?
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $300,000 of debt at an interest rate of 12% and use the proceeds to repurchase 30,000 shares at $10 per share. Profits before interest are expected to be $130,000. What is the ratio of price to expected earnings for River Cruises before it borrows the $300,000? What is the ratio after it borrow?

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS