The Bidvest Group Limited headquartered in Cape Town has 50,000 shares valued at R820k and debt of R160k. The interest rate is 10% and the current principal payment is 25%. It intends to expand the operation and expects EBIT of R210K to increase by half (50%). It can raise the required R300K by either borrowing or selling new shares. Bidvest Group can issue 15k shares at a price of R20 each. Debt levels can be raised to 12% with a principal payment of 5%. Determine the following: ROE with the increased debt.
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- 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?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 costsThe 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…
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- Company A is planning a $4,000,000 expansion this year. The expansion can be financed by issuing either common shares of bonds. The new common share can be sold for $5 per share. The bonds can be issued with a 12% coupon rates. The firm’s existing preference share pay dividends of $2 per share. The company’s corporate income tax is 30%. The financial statement is as follow:- Current Assets $ 2,000,000 Fixed Assets $ 8,000,000 $ 10,000,000 Current Liabilities $ 1,500,000 Bonds: (8.5%, $1,000 par value) $ 4,000,000 (9%, $1,000 par Value) $ 1,000,000 Preference Shares ($ 100 par value)…Doha plc has some surplus funds that it wishes to invest in bonds. The company requires a return of 15% on bonds, and the finance director has asked you to analyse whether it should invest in either of the following bonds that are available:Company A: Expected profit 12% bonds, redeemable at par at the end of two more years, with a current market value of QAR 95 per QAR 100 bondCompany B: Expected profit 8% bonds, redeemable at QAR110 at the end of two more years, with a current market value of QAR 95 per QAR 100 bonda. Calculate the expected value (price) of the two bonds and evaluate if either offer an appropriate return for Doha Plc.b. Critically evaluate what would be the impact on the price of bonds if Doha Plc reduces their required return.c. Critically evaluate and discuss the factors that should be considered by the directors of a company when choosing whether to use debt or equity finance for a new projectd. Recently one director has attended a finance conference, on their…Cotton On Ltd. currently has the following capital structure: Debt: $3,500,000 par value of outstanding bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 12%. The bond issue has face value of $1,000 and will mature in 20 years. Ordinary shares: $5,500,000 book value of outstanding ordinary shares. Nominal value of each share is $100. The firm plan just paid a $8.50 dividend per share. The firm is maintaining 4% annual growth rate in dividends, which is expected to continue indefinitely. Preferred shares: 45,000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 12%. The firm's marginal tax rate is 30%. Required: a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? c) Calculate the current price of the preferred share if the average return of the shares in the same industry is 10%. Please dont use…
