Dorper Ltd a company that specializes in breeding Dorper sheep in Zimbabwe has a target capital structure
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Question:
issue of ordinary shares as all retained income is already budgeted for on more profitable projects. The company recently issued debentures and as a result, the present capital structure in more heavily weighted towards debt.
i. Calculate the weighted average cost of capital (wacc) for Dorper Ltd.
[3 marks]
ii. State, with reasons, whether the project under consideration should be accepted.
iii. Explain reasons that could be attributed to a larger increase in cost of debt for Dorper Ltd.
iv. "Dorper management is choosing to raise additional capital using ordinary shares because they want new investors to come and participate in a gloomy company future". (High Yield Corporate Analyst,2017). Evaluate the analyst's statement.
v. Explain how the financial manager can utilize Sensitivity and Scenario analysis in making the expansion investment decision.
Related Book For
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
8th edition
Authors: Hilton Murray, Herauf Darrell
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