Question
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
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 burnies 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 companys tax rate is 30%.
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