FIN1FOF-FUNDAMENTALS OF FINANCE - ASSIGNMENT Gold Coast Manufacturing Company Ltd Balance Sheet as at 31/12/19 ASSETS LIABILITIES Notes Cash 100 Accounts payable 100 Accounts Receivable 180 Bank loan (interest only) 1 210 Inventory 620 Mortgage Loan 2 530 Property, plant & equipment 1,150 Corporate bonds 3 330 Total Assets 2,050 Total liabilities 1,170 SHAREHOLDERS' EQUITY Ordinary shares 4 440 Preference Shares 5 210 Retained earnings 230 Total shareholders' equity 880 Total liabilities and shareholders' equity 2,050 Notes 1. The interest rate on the bank loan is 8.8% p.a. 2. The interest rate on the mortgage loan is 5.2% p.a. 3. The corporate bonds have a credit rating of AA and have 9 years to maturity. They make semi-annual coupon payments at a coupon rate of 5% p.a. 4. The ordinary shares are shown on the balance sheet at their book value of $1 per share. They have a beta of 1.1. They are expected to pay a dividend of $0.08 next year. The dividend is expected to grow at a rate of 8% p.a. for the following 4 years, and after that it will grow at a constant rate of 3% p.a. in perpetuity. 5. The preference shares have a par value of $1 each and are shown on the Balance Sheet at their par value. They pay a constant dividend of $0.10 and they are currently trading for $1.18. 6. The market risk premium is 7.1%. Rating AAA 1 yr 2 yr 3 yr 4 yr 5 yr 6 yr 7 yr 8 yr 9 yr 10 yr 110 145 180 215 250 285 320 355 390 425 AA+ 122 157 192 227 262 297 332 367 402 437 AA 134 169 204 7:39 774 309 344 379 414 449 AA 146 181 216 251 286 321 356 391 426 461 A+ 158 193 228 263 298 333 368 403 438 473 A 170 205 240 275 310 345 380 415 450 485 A- 182 217 252 287 322 357 392 427 462 497 BBB+ 194 229 264 299 334 369 404 439 474 509 BBB 206 241 276 311 346 381 416 451 486 521 BBB- 218 253 288 323 358 393 428 463 498 533 BB+ 230 265 300 335 370 405 440 475 510 545 BB 242 277 312 347 382 417 452 487 522 557 BB- 254 789 374 3.59 394 479 464 499 534 569 B+ 266 301 336 371 106 111 176 511 516 581 B 278 313 318 383 118 153 188 523 558 593 B- 290 325 360 395 130 165 500 535 570 605 CCCI 302 337 372 407 442 477 512 547 582 617 CCC 314 349 384 419 454 489 524 559 594 629 CCC- 326 361 396 431 466 501 536 571 606 641 CC 338 373 408 443 478 513 548 583 618 653 350 385 420 455 490 525 560 595 630 665 PART 1 - WEIGHTED AVERAGE COST OF CAPITAL Enter numbers in the "Cost" column as percentages rounded to 3 decimal places. Enter whole numbers only in the "Value" column and base your weights on those whole numbers. Enter numbers in the "Weight" column as percentages rounded to 2 decimal places. Dividend 1 year from now $0.0864 Dividend 2 years from now $0.0933 Dividend 3 years from now $0.1007 Dividend 4 years from now $0.1088 Dividend 5 years from now $0.1175 Dividend 6 years from now $0.1269 COST SOURCE OF CAPITAL (3 decimal places) VALUE (Whole numbers) WEIGHT (2 decimal places) Price of ordinary shares (Round to 2 decimal places) Number of ordinary shares $2.04 440 Total market value of ordinary shares $897 0.89% Bank Loan (interest only) Before-tax cost of bank loan Market value of bank loan Mortgage Loans Before-tax cost of mortgage loan 0.088% Preference Shares $210 4.19% Preference dividend per share Preference share price $0.10 $1.18 Cost of preference shares 0.052% Market value of mortgage loan Corporate Bonds Credit spread 414 basis points Credit spread as a percentage (2 decimal places) Risk-free rate to be used to calculate cost of 4.14% 1.180% corporate bonds (3 decimal places) $530 0.98% Number of preference shares Total market value of preference shares 210 $247 $1,918 22% Before-tax cost of corporate bonds Face value of all bonds Coupon rate Number of years to maturity Number of coupon payments per year Total number of coupon payments remaining Total value of all coupon payments paid per year Value of each individual coupon payment Semi-annual yield (3 decimal places) Value of corporate bonds Ordinary Shares All of the weighted costs below should be after-tax costs (where applicable), as percentages rounded to 2 decimal places Weighted Cost of the Bank Loan (i.e. cost x weight) Weighted Cost of the Mortgage Loan Weighted Cost of the Corporate Bonds Weighted Cost of the Ordinary Shares Weighted Cost of the Preference Shares Weighted Average Cost of Capital 4.19% 0.98% 15.65% 0.89% Tax Rate 5.320% $330 5% 9 33 264 $54.45 $1.65 15.150% $34 15.65% Risk-free rate to be used to calculate cost of ordinary shares (3 decimal places) 1.026% Beta Market risk premium Cost of ordinary shares 1.1 7.1% 0.080% You may not need every line in the following table of dividends. Only enter the dividends needed to calculate the share price. Enter the actual dividends - not their present value-rounded to 4 decimal places. Time value of money calculations should be done in the final step when you calculate the share price.