D-Tech UK Ltd is a company based in Manchester, United Kingdom, established in 2010. The company specializes in manufacturing cutting-edge electronic devices. Despite encountering challenges such as disruptions caused by Covid-19 in its supply and distribution chain, D-Tech UK Ltd has maintained its profitability thanks to its high-quality products and a strong commitment to exceptional customer service.

D-Tech UK Ltd operates with a diverse set of departments including Sales, Customer Relations, Finance, Production, Research and Development, and Human Resources. The company's mission is to be acknowledged by both its customers and employees as a forward-thinking, high-quality provider of cutting-edge electronic solutions, all while ensuring affordability.

At the board meeting held on the 21st of May 2023, as the Chief Financial Officer (CFO) of D-Tech UK Ltd, it is your responsibility to compile a report addressing the five crucial matters. Our board comprises highly educated and qualified members, necessitating a well-structured and professionally written report supported by academic and professional references.

Issue 1

In support of your report and arguments, you have reviewed several journal articles. According to Hand, Holthausen, and Leftwich (1992), researchers have commonly utilized two bond pricing models, namely, the absolute yield model and the relative yield model, to investigate the effects of various economic or regulatory changes on debt securities. The literature pertaining to financial bonds delves into the behavioral implications of these two models, providing both theoretical and empirical examinations of their differing specifications. Evidence presented in these studies suggests that the relative yield model may offer a more suitable specification.

Furthermore, it's worth noting that bonds represent a crucial investment class, yet they are often underutilized by individual retail investors. Bonds offer ease of purchase and can serve as a cornerstone for those seeking to build a financial cushion, as they provide consistent returns upon which to construct a diversified portfolio. Investing in bonds not only reduces risk but also minimizes the potential for losses, offering investors a more stable and balanced investment strategy.

You must explain the D-Tech UK Ltd board of directors:

• How do changes in interest rates and inflation affect the prices of bonds?

• What distinguishes secured bonds from unsecured bonds?

• Tesco PLC has bonds on the market making annual payments, with 12 years to maturity, and selling for 1,030. At this price, the bonds yield 6.14 percent. The par value of the bond is 1000. What must be the coupon rate on the bonds?

D-Tech UK Ltd is contemplating an investment in bonds issued by Tesco PLC several years ago, with a denomination of 100 each. These bonds are set to mature in seven years, carry an annual interest rate of 15%, and are currently trading at a market value of 135 per 100 of debt. Determine the Yield to Maturity (YTM) for these bonds.

Issue 2

D-Tech UK Ltd is planning to invest in Jumbo PLC. The assistant accountant provides the following information regarding Jumbo PLC's investment.The current net income of Jumbo PLC is 23 million. The company has issued both preferred and common shares. No dividends will be paid on any of the shares over the next three years. Please explain the followings to the D-Tech UK Ltd board of directors.

• State one possible reason to explain why the company chooses not to declare dividends for the next three years.
• Suppose the company will pay a dividend of $2.5 per common share four years from today and indefinitely increase the dividend by 3 percent per year. If the required return on this stock is 12 percent, what is the price per common share in three years? What is the current share price?

• Suppose the company decides to pay a dividend of $2 per preferred share four years from now and maintains the practice forever. If the required rate of return is 10 percent, what is the price per preferred share three years from now? What is the current share price for the preferred stock?

Issue 3

D-Tech UK Ltd is currently exploring opportunities to venture into new projects and expand its business operations. However, the company is facing a challenge in determining its marginal cost of capital. The cost of equity, which represents the expected return demanded by investors, is set at 18%. Additionally, the cost of debt, based on bond yields similar to Tesco PLC's, has been established. D-Tech has identified a target capital structure consisting of 40% debt and 60% equity. With a corporate tax rate of 20%, the company seeks to calculate its estimated cost of capital under these conditions.

(10 marks)

Issue 4

In light of growing concerns related to sustainability, there is a noticeable uptick in emerging trends such as sustainable finance, green finance, and climate finance. While these three financial approaches exhibit subtle distinctions, some individuals perceive them merely as different labels for the same underlying concept, namely, sustainable finance. However, this perceived lack of clarity notwithstanding, the subsets of sustainable finance, particularly green finance, encounter various impediments that hinder their widespread adoption. One of the most pressing challenges is the scarcity of essential information.

This dearth of information arises as a critical issue because there is a heightened demand from investors for comprehensive data, coupled with regulatory mandates and the continuous development of robust reporting standards. Consequently, a global trend is taking shape, emphasizing the formalization of sustainability reporting. An emerging practice in this regard is integrated reporting, where financial and sustainability-related information is amalgamated into a single comprehensive report. Notably, the involvement of accounting professionals is progressively augmenting and enhancing this evolving trend. Recognizing that accounting majors represent the future workforce of accounting professionals, their perspectives and views hold significant importance.

Given this backdrop, D-Tech UK Ltd is actively seeking to gain insight into the current landscape and potential opportunities pertaining to sustainability, integrated reporting, and green finance. To fulfill this objective, an in-depth examination of regulatory requirements and sustainability reporting standards is required.You need to provide a critical discussion on the regulatory requirements and sustainability reporting standards. Your discussion should also address the company's perception of sustainability and integrated reporting's potential advantages and disadvantages. Besides, you are to provide a sound discussion on the challenges faced by green finance and how to tackle those challenges.

Issue 5

D-Tech UK Ltd became a public listed company after 10 ytears.D-Tech UK PLC , is now considering two financial strategies: paying an extra dividend or conducting a share repurchase. In both scenarios, the company plans to allocate 20,000. Currently, D-Tech UK PLC has earnings of 6.0 per share, and its stock is trading at 40 per share. There are 4,000 shares outstanding. For the purpose of this analysis, disregard tax implications and other imperfections while addressing the following:

• Evaluate the impact of both alternatives on the stock's price per share and the overall wealth of the shareholders.
• Determine how each of these strategies would affect D-Tech UK PLCs Earnings Per Share (EPS) and Price-to-Earnings (P/E) ratio in the two different scenarios

• In practice, which of these actions would you recommend for D-Tech UK PLC? Provide a rationale for your recommendation.