Bernie Ltd is considering the purchase of a new equipment for its manufacturing plant and has...

Bernie Ltd is considering the purchase of a new equipment for its manufacturing plant and has asked you to work out an appropriate discount rate to use when evaluating the project.

information about burnie’s current capital structure is as follows:

Source of capital. Book value. Market value

debts. $1,500,000. $1,600,000

ordinary share capital. $1,800,000. $3,000,000

total. $3,300,000. $3,600,000

to finance the purchase, Bernie can sell 10 year-bonds paying annual coupon interest at a rate of 6%. The bond can be sold at par.

ordinary shares of Telstra are currently selling at $20.4. The company paid a dividend of $2.00 this year and dividends are expected to growth by an average of 2% per year for the indefinite future.

the current company’s tax rate is 30%.

Solutions

Expert Solution

We can evaluate the project we can use WACC method. ie, Weighted Average Cost of Capital Method..

The calculation has been uploaded below. please find the attachment

jeff jeffy answered 1 year ago

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