To assist with evaluating potential capital projects, Insignia Corporation Limited is seeking to determine its Weighted Average Cost of Capital. Utilising information from the financial statements, the company has the following capital structure: Debt: Bonds outstanding has a face value of $835,000,000, currently selling at 105% of par. The coupon rate on these bonds is 9% and there is 10 years left to maturity. (Hint: you can use the lowest multiple of $1,000 for the YTM calculation only) Common stock: 13,000,000 shares of common stock outstanding with a market price of $60.00. The company has no preference shares outstanding. Additional Information: The Company’s tax rate is 30%. The current risk free rate is 3.50%; market return is 8%. The Company’s beta is 2.50. Required: Calculate the Weighted Average Cost of Capital for Insignia Corporation Limited
To assist with evaluating potential capital projects, Insignia Corporation Limited is seeking to determine its Weighted Average Cost of Capital. Utilising information from the financial statements, the company has the following capital structure: Debt: Bonds outstanding has a face value of $835,000,000, currently selling at 105% of par. The coupon rate on these bonds is 9% and there is 10 years left to maturity. (Hint: you can use the lowest multiple of $1,000 for the YTM calculation only) Common stock: 13,000,000 shares of common stock outstanding with a market price of $60.00. The company has no preference shares outstanding. Additional Information: The Company’s tax rate is 30%. The current risk free rate is 3.50%; market return is 8%. The Company’s beta is 2.50. Required: Calculate the Weighted Average Cost of Capital for Insignia Corporation Limited
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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To assist with evaluating potential capital projects, Insignia Corporation Limited is seeking to determine its Weighted Average Cost of Capital.
Utilising information from the financial statements, the company has the following capital structure:
Debt: Bonds outstanding has a face value of $835,000,000, currently selling at 105% of par. The coupon rate on these bonds is 9% and there is 10 years left to maturity. (Hint: you can use the lowest multiple of $1,000 for the YTM calculation only)
Common stock: 13,000,000 shares of common stock outstanding with a market price of $60.00.
The company has no
Additional Information:
- The Company’s tax rate is 30%.
- The current risk free rate is 3.50%; market return is 8%.
- The Company’s beta is 2.50.
Required: Calculate the Weighted Average Cost of Capital for Insignia Corporation Limited.
Transcribed Image Text:Insignia Corporation Limited
Income Statement
For the years ended December 31, 2019 & 2020
2019
2020
('000s)
900,000
(350,000)
(75,000)
(65,000)
(55,000)
355,000
('000s)
Sales
1035,000
Cost of Goods Sold
Selling & Marketing Costs
Admin. Expenses
Depreciation Expense
Earnings before Interest & Taxes
Interest Expense
(400,000)
(80,000)
(75,000)
(60,000)
420,000
(25,000)
330,000
(30,000)
390,000
Taxable Income
Taxation (30%)
(99,000)
231,000
(117,000)
273,000
Net Income
Dividends (40%)
Addition to Retained Earnings
92,400
138,600
109,200
163,800
Transcribed Image Text:Insignia Corporation Limited
Statement of Financial Position
As at December 31, 2018 & 2019
2019
2020
2019
2020
('000s)
('000s)
('000s)
('000s)
ASSETS
LIABILITIES & EQUITY
Current Assets
Current Liabilities
Accounts Payables
Notes Payables
Inventories
350,000
450,000
160,000
175,000
100,000
275,000
Accounts Receivables
200,000
350,000
243,800
395,000
60,000
Cash & Equivalents
220,000
900,000
1088,800
Non-current Liabilites
790,000
835,000
Non Current Assets, Net
700,000
805,000
Total Liabilities
1010,000
1110,000
Equity
Common Stock
Retained Earnings
Total Equity
230,000
260,000
523,800
783,800
360,000
590,000
TOTAL ASSETS
1600,000
1893,800
TOTAL LIAB. & EQUITY
1600,000
1893,800
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