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the pi "he CAPI he Gord The

the pi "he CAPI he Gord The

FINANCIAL ACCOUNTING
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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Balance sheet at 31 May 20x4 Sm 233 Ordimary share capital (10p shares) Retained eamings 5030 5263 1900 6% redeemable debentures at nominal value (redeemable 20x8) Long term bank loans (interest rate 4%) 635 7798 On 31 May 20x4 Tumers' ordinary shares had a market value of 276p (ex-div) and an equity beta of 0.6. For the year ended 31 May 20x4 the dividend yield was 4.2% and the share were 25p. The retum on the market is expected to be 8% pa and the risk $100 eamings per free rate 2% pa. Tumers debentures had a market value of $108(ex-imterest) per nominal value on 31 May 20x4 and they are redeemable at par on 31 May 20x8. The market interest rate for long term loans to companies that are similar with Tumers has not changed much compared with that when Tumers had borrowed from the banks. Companies operating solely in the holiday travel industry have an average equity beta of 1.4 and an average debt'equity ratio (by market value) of 3:5. It has been estimated that if the project goes ahead the overall equity beta of Tumers will be made up of 90% food retailing and 10% holiday travel shops. Assume that the corporation tax rate will be 17% pa for the foreseeable future Required: 1) Igmoring the project, calculate the current WACC of Tumers using: a) The CAPM b) The Gordon growth model +
Transcribed Image Text:Balance sheet at 31 May 20x4 Sm 233 Ordimary share capital (10p shares) Retained eamings 5030 5263 1900 6% redeemable debentures at nominal value (redeemable 20x8) Long term bank loans (interest rate 4%) 635 7798 On 31 May 20x4 Tumers' ordinary shares had a market value of 276p (ex-div) and an equity beta of 0.6. For the year ended 31 May 20x4 the dividend yield was 4.2% and the share were 25p. The retum on the market is expected to be 8% pa and the risk $100 eamings per free rate 2% pa. Tumers debentures had a market value of $108(ex-imterest) per nominal value on 31 May 20x4 and they are redeemable at par on 31 May 20x8. The market interest rate for long term loans to companies that are similar with Tumers has not changed much compared with that when Tumers had borrowed from the banks. Companies operating solely in the holiday travel industry have an average equity beta of 1.4 and an average debt'equity ratio (by market value) of 3:5. It has been estimated that if the project goes ahead the overall equity beta of Tumers will be made up of 90% food retailing and 10% holiday travel shops. Assume that the corporation tax rate will be 17% pa for the foreseeable future Required: 1) Igmoring the project, calculate the current WACC of Tumers using: a) The CAPM b) The Gordon growth model +
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