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

The shareholders of motive power corp need to elect four

The shareholders of Motive Power Corp. need to elect four new directors to the board. There are 14,900,000 shares of common stock outstanding, and the current share price is $11.10. If the company uses cumulative voting ...

1 what are the four basic goals of behavioral research2

1. What are the four basic goals of behavioral research? 2. Distinguish between basic and applied research. In what ways are basic and applied research interdependent?

Assume that the heights of men are normally distributed

Assume that the heights of men are normally distributed with a mean of 67.3 inches and a standard deviation of 3.5 inches. If 100 men are randomly selected, find the probability that they have a mean height greater than ...

For each of the following scenarios identify which sampling

For each of the following scenarios, identify which sampling method is used: a. The State College is conducting a survey of student attitudes and opinions. The plan is to use the list of all registered students and rando ...

Bellamee company has bonds outstanding with five years to

Bellamee Company has bonds outstanding with five years to maturity and a face value of $5,299. The bonds are currently priced at their face value. If the bonds have a coupon rate of 25 percent, then what is Bellamee's af ...

We are going through financial crisis seven years have

We are going through financial crisis. Seven years have passed and we are still in recovery stage. Based on the analysis in the class, can you suggest and elaborate an alternative way to deal with the financial crisis?

As mentioned in the chapter during early 2010 investors

As mentioned in the chapter, during early 2010, investors began to worry that the government of Greece might default on its bonds. The rating agencies downgraded Greek bonds several times. Following one of the rating dow ...

Straight supply is a major supplier of medical components

Straight Supply is a major supplier of medical components to large pharmaceutical corporations. Bonnie Straight is a second generation CEO of the company founded by her father forty years ago. Originally established in M ...

Describe the mil-std-1312 nas test name three generic

Describe the MIL-STD-1312 (NAS) test ? Name three generic ways to prevent or at least minimize self-loosening ? Define prevailing torque ? A proper length-to-diameter ratio for the bolt can reduce or eliminate self-loose ...

1 how does descriptive research differ from other kinds of

1. How does descriptive research differ from other kinds of research strategies, such as correlational, experimental, and quasi-experimental research? 2. What is a cross-sectional survey design, and how does it differ fr ...

  • 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

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

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen