QUESTION 2: S.B.Consult Ltd, recognized as the leader in hospital supplies, has received an invitation to...

The following information was extracted from the recently published accounts of S.B. Consult Ltd.

	GH¢ ‘000
Equity Shares (1,000,000 shares)	70,000
15% Preference shares	50,000
10% (Bonds irredeemable)	30,000
Total	150,000

The Treasury unit of S.B.Consult Ltd has estimated that it will require GH¢ 10 million to finance the new project. The total amount would be raised through 10% Irredeemable bonds at the current market price. The cost of Preference shares and Bonds will not change but equity shareholders will demand an increase of 20% on the current cost of equity. S.B.Consult Ltd has a beta of 0.8, the market risk premium for the steel industry is 6.25%, and the Government of Ghana Bond rate is 20%. The current market price for Irredeemable Bonds of GH¢1,000 nominal value is GH¢850. S.B. Consult Ltd’s dividend policy is to pay constant dividend and this policy will not change into the foreseeable future. The recent dividend paid was GH¢20 per share. S.B. Consult Ltd is a Free Zones Company and therefore pays tax at a rate of 8%.

Required: i) Calculate the current market capitalization of S.B. Consult Ltd.

(Hint: ?=??+ ? (??−??))

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jeff jeffy answered 1 year ago

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