Question

There are 5 million ordinary shares. The beta of the shares is 0.6, the risk-free rate...

There are 5 million ordinary shares. The beta of the shares is 0.6, the risk-free rate is 2% pa and the return on the market is 10% pa. The shares last traded at $10.00 per share.
An overdraft of $15 million attracts an interest rate of 6% pa compounded monthly.
Bonds exist with a total face value of $30m, a market value of $30m, a coupon of 5% pa paid semi-annually and 10 years to maturity.
The company accounts show $4m in retained earnings and $3m in trade credit (accounts payable).
Perpetual Preference shares exist which pay an annual a dividend of $0.30 and are currently trading at $3.20. There are 5m of these preference shares on issue.
The corporate tax rate is 30%.
Calculate the Weighted Average Cost of Capital on an after-tax basis. Explain and defend your treatment of Retained Earnings and Trade Credit

Homework Answers

Answer #1

End...

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
There are 6 million ordinary shares. Analysts consider it normal to double your money in four...
There are 6 million ordinary shares. Analysts consider it normal to double your money in four years in this industry. The shares last traded at $11.00 per share. An overdraft of $15 million attracts an interest rate of 6% pa compounded monthly. 90-day bank bills have just been issued with a Face Value of $20m and yield of 4% pa. Bonds exist with a total face value of $30m, a market value of $30m, a coupon of 5% pa paid...
On 30 June 2019, Harris Ltd had the following balances in its equity accounts: Ordinary shares...
On 30 June 2019, Harris Ltd had the following balances in its equity accounts: Ordinary shares (issued at $2 each) 12,000,000 credit Preference shares (issued at $1 each) 6,000,000 credit Retained earnings 9,000,000 credit Additional information is as follows: On 31 December 2016, the company issued 200,000 options to purchase ordinary shares. Each option entitles the holder to purchase 5 ordinary shares at $2.60 each. No options have been exercised by 30 June 2019. On 1 September 2017, the company...
50 million shares $80 per share Beta = 1.11 Market risk premium = 7% Risk-free rate...
50 million shares $80 per share Beta = 1.11 Market risk premium = 7% Risk-free rate = 2% Debt Information $1 billion in outstanding debt (face value) Current quote = 108 Coupon rate = 9%, semiannual coupons 15 years to maturity Tax rate =35% What is the cost of equity? [K] What is the before-tax cost of debt? [L] What is the WACC?[M]
1. (a) Calculate the current WACC (weighted average cost of capital) of the company (Tax rate...
1. (a) Calculate the current WACC (weighted average cost of capital) of the company (Tax rate : 19%) United plc last raised capital over 10 years ago. It has £4m of 11% fixed interest stock maturing in 2024 (current market value £5m), £2.5m 9% fixed interest stock maturing in 2022 (current market value £3m), £1m 7% irredeemable preference shares (current market value £2.5m), and four million 50p (nominal value) ordinary shares (current share price £1.25). The current gross yield to...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school. The company started as a research and development...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school. The company started as a research and development...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly...
Illinois Bio Technologies Illinois Bio Technologies (IBTECH) was founded in Rosemont, Illinois, in 1992 by Kelly O'Brien, David Roberts, and Barbara Smalley. O'Brien and Roberts, both MDs, were on the research faculty at the Chicago Medical School at the time; O'Brien specialized in biochemistry and molecular biology, and Roberts specialized in immunology and medical microbiology. Smalley, who has a PhD, served a department chair of the Microbiology Department at the same school. The company started as a research and development...