All categories

2 years ago

QUESTION 1

Business

1 answer:

Archy [21]2 years ago

5 0

Weight of equity is 11.68%

Weight of preferred shares is 25.23%

Weight of debt is 63.08%

II)

Cost of equity is 15.00%

Cost of preference shares is 10.19%

After-tax cost of debt is 7.20%

III)

WACC is 8.86%

What is capital structure weight?

Capital structure weights mean the proportions of total finance of the company that each different sources of capital contribute to the overall funding of the company.

The first task is to compute the market value of each source of capital

Market value of equity=share price*shares outstanding

Market value of equity=RM$25*40000

Market value of equity=RM$1,000,000

Market value of preference shares= RM$2,000,000*RM$1.08/RM$1.00

Market value of preference shares=RM$2,160,000

Market value of debt= RM$6,000,000*RM$90/RM$100

Market value of debt=RM$5,400,000

Total market value of the company=RM$1,000,000+RM$2,160,000+RM$5,400,000

Total market value of the company=RM$8,560,000

weight of equity=RM$1,000,000/RM$8,560,000

weight of equity=11.68%

weight of preferred shares=RM$2,160,000/RM$8,560,000

weight of preferred shares=25.23%

weight of debt=RM$5,400,000/RM$8,560,000

weight of debt=63.08%

What cost of capital for capital structure mean?

This refers to the after-tax cost of each funding source

The cost of equity can be computed based expected dividend , the share price as well as the dividend growth rate

share price=expected dividend/(r-g)

share price=25

expected dividend=2

r=cost of equity=unknown

g=perpetual dividend growth=7%

25=2/(r-7%)

25*(r-7%)=2

r-7%=2/25

r=(2/25)+7%

r=15.00%

The cost of preferred stock can be determined from the price as well, where the share price is present value of annual dividend based on the present value formula of a perpetuity

share price=annual dividend/r

share price=1.08

annual dividend=11%*1

annual dividend=0.11

r=cost of preferred stock=unknown

1.08=0.11/r

r=0.11/1.08

r=10.19%

The pretax cost of debt is the 12% interest rate

after-tax cost of debt=12%*(1-40%)

after-tax cost of debt=7.20%

What is weighted average cost of capital(WACC)?

WACC is the sum of individual costs of capital source multiplied by their weights in the firm's capital structure

WACC=(cost of equity*weight of equity)+(cost of preferred stock*weight of preferred stock)+(after-tax cost of debt*weight of debt)

WACC=(15.00%*11.68%)+(10.19%*25.23%)+(7.20%*63.08%)

WACC=8.86%

Find out more on WACC on:brainly.com/question/25566972

#SPJ1

You might be interested in

If sales are $1,150,000 in 2016 and this represents a 15% increase over sales in 2015, what were sales in 2015?

frutty [35]

Take $1,150,000 multiply by 15% to get the money increase between 1 years which is $172500 then take $1,150,000 subtract by $172,500 to get the final sales in 2015 which is $977,500

5 0

3 years ago

4) All of the following are true of known liabilities except:A) Include accounts payable, notes payable, and payroll.B) Are obli

Thepotemich [5.8K]

Answer: E) May depend on some future event occurring. It is not a characteristic of known liabilities.

Explanation: Unknown or uncertain liabilities are those whose existence depends on the occurrence of a future event.

Known liabilities are definitely determinable and measurable.

3 0

3 years ago

The __________ is a listing of all the balance sheet and income-related accounts

fenix001 [56]

Answer : Chart of accounts Explanation: A chart of accounts (COA) is a created list of the accounts used by an organization to define each class of items for which money or the equivalent is spent or received. It is used to organize the finances of the entity and to segregate expenditures, revenue, assets and liabilities in order to give interested parties a better understanding of the financial health of the entity.

8 0

3 years ago

If the expected rate of inflation was 3% and the actual rate was 6.2%; the systematic response coefficient from inflation, would

Semenov [28]

The systematic response coefficient from inflation, would result in a change in any security return of 3.2 βI.

Explanation:

Given:

Expected rate of inflation = 3%

Actual rate of inflation = 6.2%

The change in security return can be calculated by obtaining the differences between actual and expected levels of inflation.

Change in security return= Actual rate of inflation- Expected rate of inflation

= 6.2%-3%

= 3.2%

Change in security return= 3.2 βI

7 0

3 years ago

CobWeb Inc., a software firm, assesses managers based on how well they understand theirsubordinates, and the factors involved in

kotegsom [21]

Answer:

The correct answer is E) Sebastian checks if the job flow and procedures are logical.

Explanation:

The entry process means the beginning of the functions exercised by managers to determine if they are indeed making good use of tools for the understanding of their subordinates. If there is a logical order between the workflow and the procedures, it is said that the evaluation is executed in the best way, since in order to execute the work it is necessary to adhere to a series of guidelines that guarantee excellent and quality work.

8 0

3 years ago