Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem 1:

A) The Foschini Group has just issued a batch of preference shares that will pay a constant dividend of R8, beginning 6 years from now. If the required rate of return is 8%, what does the share cost today?

B) Bassa Braziers Ltd, operate in the fabrication industry. They feel that some of their older gas welding machines need to be replaced. They seek your help in order to find out their cost of capital. Their present capital structure is as follows:

600 000 R2 ordinary shares now trading at R2,40 per share.
200 000 preference shares trading at R2,50 per share (issued at R3 per share). 10 % p.a. fixed rate of interest.

A bank loan of R1 000 000 at 12 % p.a. (payable in 5 years time)

Additional data:

a) The company?s beta is 1,4. A return on market of 15% and a risk free rate of 6 %.
b) Its current tax rate is 28 %.
c) Its current dividend is 50c per share and they expect their dividends to grow by 7 % p.a.

Required :

A) Assuming that the company uses the CAPM to find out their cost of equity, find out their weighted average cost of capital.

B) A further R500 000 is needed to finance the expansion. Which option should they use (from ordinary shares, preference shares or loan financing) and why?

problem 2:

Consider the following pre-merger information concerning two firms, Mokhaba Manufacturers and Mabhida Merchants:

Data                                            Mokhaba     Mabhida
Shares issued                                1600             1000
Price per share                               R35                R25

Mokhaba wishes to acquire Mabhida and believes that there will be synergistic benefits of R6000.

Note: Both firms have no debt.

A) If Mabhida is willing to be acquired at R30 per share, what is the NPV of the merger?
B) find out the PPS of the merged company.
C) find out the merger premium.

problem 3:

The Equity accounts of Blydskap Ltd are shown below:

Ordinary Share Capital (R2 par value)     R200 000
Share Premium                                   80 000
Retained Profits                                  100 000
Total Shareholders’ Equity                    380 000

If Blydskap?s shares sell for R10 per share, and a 10% scrip dividend is declared, how many new shares will be distributed?

1) Redraft the Equity accounts section of the balance sheet.
2) Has this been a wise decision? describe. 
3) Tygerberg Ltd has declared an annual dividend of 90c per share.

Their after tax profits for the year was R60 000 and they have 12 000 share in issue.

4) find out profit per share. 
5) What is their payout ratio?

problem 4:

Bugsy?s Haulers, is considering the purchase or lease of a fuel tanker.

The Purchase Option:

The purchase price is R4 000 000. This will be paid off as follows:

•    R2 500 000 immediately
•    R1 650 000 at the end of the first year (inclusive of interest).

If the tanker is owned, the service and maintenance charges will amount to R20 000 per annum. The salvage value of the tanker at the end of the period amounts to R500 000. The company uses the straight line method of depreciation.

The Leasing Option:

Alternatively, the tanker can be leased on a four year contract for R850 000 pa, with a deposit of R700 000 payable immediately and 50% refunded at end of lease period.

The after tax cost of debt is 12%. And the company tax rate is 30%

Required:

A) find out the cost of owning and leasing using the discounted cash flow method.
B) Advise on the option to adopt, with justification.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91075

Have any Question? 


Related Questions in Basic Finance

Compare and differentiate between the financial and

Compare and differentiate between the financial and investment DECISIONS MAKING?

1 historically what types of risk were the focus of most

1. Historically, what types of risk were the focus of most firms' risk- management practices? 2. Distinguish between the motivations for purchasing insurance and the motivations for hedging marketwide sources of risk. 3. ...

1 how do reward systems serve as barriers to enterprise

1. How do reward systems serve as barriers to enterprise integration? 2. In your words, describe and illustrate the great divide. Do you believe the great divide phenomenon is as widely experienced as the text indicates? ...

1 what general rule can be developed concerning maximum

1. What general rule can be developed concerning maximum values and compounding intervals within a year? 2. What does the time value of money (TVM) mean? 3. How does discounting, as used in determining present value, rel ...

Question 1 when ranking security returns from highest

Question 1. When ranking security returns from highest return to lowest return, the data shows that the annualized returns are as follows: Large stocks, small stocks, long-term corporate bonds, long-term government bonds ...

Suppose chapman corporation is planning to pay a 2 per

Suppose Chapman Corporation is planning to pay a $2 per share dividend to its common stockholders. If the common stock price after the ex-dividend date is $50, what was the stock price before the ex-dividend date? $50 $5 ...

1 briefly discuss the three objectives for developing and

1. Briefly discuss the three objectives for developing and implementing performance measurement systems. 2. Compare and contrast the various metrics for product availability. Why is the order fill rate considered the mos ...

Problem 1eric leased a new car the deal calls for 36

PROBLEM 1 Eric leased a new car. The deal calls for 36 beginning-of-month payments of $450, starting today. In addition, Eric has to include $1,000 with the final payment. The contract has an APR of 12% with monthly comp ...

Assignmentcareers in financefinance is an exciting field in

Assignment Careers in Finance Finance is an exciting field in need of intelligent, skilled people. The job opportunities range from corporate finance; financial planning; investment banking; insurance; and real estate fr ...

Wat is the resilience of the bolts and joint this time

What is the resilience of the bolts and joint this time? What is the stiffness ratio of this eccentric joint? By how much does the tensile load of 7.40 kips increase the tension in the bolts and reduce the clamping force ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro