Question

In: Accounting

Question 9 (10 marks) Nodebt Ltd has a capital structure of 100% ordinary equity with a...

Question 9

Nodebt Ltd has a capital structure of 100% ordinary equity with a current return on equity of 18%: Its Earnings before Interest and Taxation was $142,857. Nodebt pays tax at the rate of 30%.

  1. What is the current market value of Nodebt Ltd?                                          

Click or tap here to enter text.

  1. What is the Weighted Average Cost of Capital?

(2marks)

Click or tap here to enter text.

  1. What is the market value of Nodebt Ltd after it issues the debt.                   (1 mark)

Click or tap here to enter text.

  1. What is the market value of Nodebt Ltd’s equity after it issues the debt.      (1 mark)

Click or tap here to enter text.

  1. What is the cost of equity (ke) after it issues the debt.                                    (1 mark)

Click or tap here to enter text.

  1. What is the new Weighted Average Cost of Capital?                                       (1mark)                                     

Click or tap here to enter text.

Explain what has happened to the WACC and why?                                             

Solutions

Expert Solution

Solution;

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

The Capital structure of ABC Ltd, is as under: Equity share capital ₹ 100 Lacs 10%...
The Capital structure of ABC Ltd, is as under: Equity share capital ₹ 100 Lacs 10% Debentures ₹ 50 Lacs The sales for the year 2019 are 1.5 Lac units@ ₹ 40per unit  Also, the variable cost per unit is 20 % of sales revenue  ₹ 12 Lacs is the fixed operating cost.  Assume Income tax rate as 40 % Calculate Operating, Financial and Combined Leverage of the firm and interpret the result.
Crown Ltd has the following book value capital structure. Equity capital (shares of Rs 10 par...
Crown Ltd has the following book value capital structure. Equity capital (shares of Rs 10 par value each) Rs 15 crore, 12% Preference capital (Rs 100 par value each) Rs 1 crore. Retained earnings Rs 20 crore, 11.5% Debentures (Rs 100 par value each) 10 crore and 11% Term loan Rs 12.5 crore. The next year expected dividend on equity is Rs 3.6 per share and has an expected growth rate of 7%. The market value is Rs 40/share. Preference...
The capital structure of Vermont Machinery Ltd. (VM) contains the following items. Equity: 2,000,000 ordinary shares,...
The capital structure of Vermont Machinery Ltd. (VM) contains the following items. Equity: 2,000,000 ordinary shares, with face value of $1 per share. VM’s ordinary shares are currently trading at $5 per share. The company’s next dividend is estimated to be $0.50. This dividend is expected to grow at 3% per annum forever. The current market required rate of return of the shares is calculated as 13%. Long-term bonds: 10,000 bonds maturing in 5 years, with a face value of...
a firm has a capital structure of 100% equity. An analyst has estimated the firm's beta...
a firm has a capital structure of 100% equity. An analyst has estimated the firm's beta as 1.20, and current market conditions feature a risk free rate of 2%, and a market portfolio risk premium of 6%. The firm is considering the following project: Invest $60 million today , The project will have a cash flow of $5 million in the first year, and cash flow will grow by 5% each year for a 20-year period.
Kiwi Helicopters Ltd has a target capital structure of 70% ordinary common shares and 30% debt....
Kiwi Helicopters Ltd has a target capital structure of 70% ordinary common shares and 30% debt. They issued a twenty-year, 5% bond 10 years ago. The bond currently has a yield-to-maturity of 7.5%. The ordinary common shares are currently selling for $45. They have a beta of 1.75 and are expected to pay a $3.25 dividend next year. The firm has a 30% marginal tax rate. The market has an expected return of 12%. Treasury bills are currently paying 2%....
August Ltd has equity capital amounting to N$350 million comprising ordinary share capital N$70million and retained...
August Ltd has equity capital amounting to N$350 million comprising ordinary share capital N$70million and retained earnings of N$280 million. The par value of a fully paid up share is N$10. August Ltd has a profit after tax for the year just ended of N$87.5 million. The current market price of the share is N$110 and the dividend ratio is 60%. Debt amounts to N$420 million. (d) Suppose the company decides to buy back shares worth N$41.8 million at the...
Q CO. has a capital structure that consists of 100% equity. The risk free rate is...
Q CO. has a capital structure that consists of 100% equity. The risk free rate is 7% and the market risk premium, (Rm – Rr), is 5%. Currently the company’s cost of equity (rs), which is based on CAPM, is 12% and its tax rate is 30%. What would be Q’s estimated cost of equity if it were to change its capital structure to 30% debt and 70% equity? Compute the business risk premium and financial risk premium under the...
Gidimadjor has the following capital structure GH¢ 000 GH¢ 000 Equity and reserves Ordinary shares 23,000...
Gidimadjor has the following capital structure GH¢ 000 GH¢ 000 Equity and reserves Ordinary shares 23,000 Reserves 247,000 270,000 Non-current liabilities 5% Preference shares 5,000 6 % loan notes 11,000 Bank loan 3,000 19,000 289,000 The ordinary shares of Gidimadjor are currently trading at GH¢ 4·26 per share on an ex dividend basis and have a nominal value of GH¢ 0·25 per share. Ordinary dividends are expected to grow in the future by 4% per year and a dividend of...
Aide Ltd company has an all equity capital structure of 50,000 shares with a current share...
Aide Ltd company has an all equity capital structure of 50,000 shares with a current share price of $5. The company wishes to raise $250,000 at the current share price of $5 per share or borrow the $250,000 at a cost of 5%. What is the EBIT-EPS indifference point of these two plans? The relevant tax rate is 30%
Part A (4 marks) Pearson Ltd is financed through the following sources:  Ordinary share: 100...
Part A Pearson Ltd is financed through the following sources:  Ordinary share: 100 million shares outstanding, with current market price of one share at $2.2  Bank loan: $100 million borrowed from ANZ bank with an interest rate of 6%  Corporate bond: Pearson’s corporate bond is currently trading at 80% of its face value. The bonds pay coupons once per annum and have a total book value of $100 million. The current yield to maturity on the bond...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT