Question 3 Not yet saved Marked out of 1.00 Flag question Frogmouth Ltd. issued a fixed-rate perpetual preference share 3 years ago at $25.00 per share with a $1.30 dividend. If the company were to issue preference shares today, the yield would be 4.6 per cent. Calculate the share's current value. (1 Mark) Answer: Express answer as a decimal to 2 decimal places Question 4 Not yet saved Marked out of 1.00 Flag question Suppose the cost of capital of Grand Ltd is 8 per cent. Its capital structure is 30 per cent debt and 70 per cent equity. Its before-tax cost of debt is 9 per cent, and its corporate tax rate is 30 per cent. Calculate Grand Ltd's cost of equity. (1 Mark) Answer: Do not include a percentage sign. Answers must be expressed as a decimal to 4 places.
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Since the before-tax cost of debt is 9 percent and the corporate tax rate is 30 percent, the after-tax cost of debt can be calculated as follows: After-tax cost of debt = Before-tax cost of debt * (1 - Tax rate) After-tax cost of debt = 0.09 * (1 - Show more…
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A firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Source of capital Target market proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The firm can sell a 20-year, RM1,000 par value, 9% bond for RM980. A flotation cost of 2% of the face value would be required in addition to the discount of RM20. Preferred stock: The firm has determined it can issue preferred stock at RM65 per share par value. The stock will pay an RM8.00 annual dividend. The cost of issuing and selling the stock is RM3 per share. Common stock: The firm's common stock is currently selling for RM40 per share. The dividend expected to be paid at the end of the coming year is RM5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was RM3.45. It is expected to sell a new common stock issue must be underpriced at RM1 per share, and the firm must pay RM1 per share in flotation costs. Additionally, the firm's marginal tax rate is 40%. Calculate the firm's weighted average cost of capital assuming the firm has exhausted all retained earnings.
Akash M.
Supreeta N.
Text: Problem 3-12 Suppose that you sell short 250 shares of Xtel, currently selling for $100 per share, and give your broker $15,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $115; (ii) $100; (iii) $95? Assume that Xtel pays no dividends. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) b. If the maintenance margin is 25%, how high can Xtel's price rise before you get a margin call? (Round your answer to 2 decimal places.) c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)
Sri K.
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