Question

In: Finance

RON Ltd has the following capital structure components: Five million shares issued with a current market...

RON Ltd has the following capital structure components:

  • Five million shares issued with a current market price of 7. Equity holders require a 9% return.
  • $10 million face value of Corporate bonds outstanding. These bonds pay an annual coupon of 6% and currently trade at a yield to maturity of 6%.

If the firm faces a corporate tax rate of 30%, compute RON Ltd's Weighted Average Cost of Capital (WACC). Enter your answer in decimal form to FOUR decimal places. For example 10.34%, would be entered as 0.1034

Solutions

Expert Solution

jeff jeffy answered 10 months ago
Next > < Previous

Related Solutions

(A)    A company has a capital structure comprising 5 million issued shares with a current market...
(A)    A company has a capital structure comprising 5 million issued shares with a current market price of $10 per share. Expected profit is $6 million, all of which will be paid out as dividends. The company has no debt and pays no tax on its profits.           (i)      Under the present capital structure, what is the market value of the firm? (1 mark)                              (ii)     What is the rate of return (% pa) on the company’s equity capital?...
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%
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...
Barney Ltd has acquired, during the current year, the following investments in shares issued by other...
Barney Ltd has acquired, during the current year, the following investments in shares issued by other companies. Ted Ltd $120 000 (40% of issued capital) Mosby Ltd $117 000 (35% of issued capital) Barney Ltd is unsure how to account for these investments and has asked you, as the auditor, for some professional advice. Specifically, Barney Ltd is concerned that it may need to consider those entities as subsidiaries under AASB 10/IFRS 10. To help you, the company has provided...
Aligram Software Ltd has five million shares outstanding and its market price is $61 per share....
Aligram Software Ltd has five million shares outstanding and its market price is $61 per share. The company has only two bonds outstanding. Bond A is a 15-year bond issued four years ago, which has a face value of $100 million and a coupon rate of 5%, and is selling for 95% of the par value. Bond B is a five-year bond issued one year ago, which has a face value of $60 million and a coupon rate of 6.5%,...
During the current year, Ron and Anne sold the following assets: Capital Asset Market Value Tax...
During the current year, Ron and Anne sold the following assets: Capital Asset Market Value Tax Basis Holding Period L stock $50,000 $41,000 > 1 year M stock 28,000 39,000 > 1 year N stock 30,000 22,000 < 1 year O stock 26,000 33,000 < 1 year Antiques 7,000 4,000 > 1 year Rental home 300,000* 90,000 > 1 year $30,000 of the gain is 25 percent gain (from accumulated depreciation on the property) Ignore the Net Investment Income Tax....
During the current year, Ron and Anne sold the following assets: Capital Asset Market Value Tax...
During the current year, Ron and Anne sold the following assets: Capital Asset Market Value Tax Basis Holding Period L stock $50,000 $41,000 > 1 year M stock 28,000 39,000 > 1 year N stock 30,000 22,000 < 1 year O stock 26,000 33,000 < 1 year Antiques     7,000 4,000 > 1 year Rental home 300,000* 90,000 > 1 year *$30,000 of the gain is 25 percent gain (from accumulated depreciation on the property). Ron began business four years...
Morris Company has the following capital structure: Common stock, $2 par, 100,000 shares issued and outstanding...
Morris Company has the following capital structure: Common stock, $2 par, 100,000 shares issued and outstanding On October 1, 2020, the company declared a 5% common stock dividend when the market price of the common stock was $10 per share. The stock dividend will be distributed on October 15, 2020, to stockholders on record on October 10, 2020. Upon declaration of the stock dividend, Norris Company would record: A. A debit to Retained Earnings for $200,000 B. A credit to...
A firm has the following capital structure: £240 million of equity (market value), trading at £2.4...
A firm has the following capital structure: £240 million of equity (market value), trading at £2.4 per share, and £160 million of debt. The beta of the firm’s stock is 1.5. The firm’s cost of equity is 10 percent, and the expected return on the market portfolio is 7 percent. There is no tax. Assuming that the firm can borrow at the risk free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the...
An acquirer has an issued capital of 300 million shares trading at $6.04. A target company...
An acquirer has an issued capital of 300 million shares trading at $6.04. A target company has an issued capital of 500 million shares trading at $3.03. The acquirer expects synergies from an acquisition with a present value of $300 million and offers target company shareholders 0.5 acquirer shares for each target company share. What is the likely post-announcement price of acquirer company stock (to two decimal places)?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT