Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Gidimadjor has the following capital structure GH 000 GH 000 Equity and reserves Ordinary shares 23,000 Reserves 247,000 270,000 Non-current liabilities 5% Preference shares 5,000

Gidimadjor has the following capital structure GH 000 GH 000 Equity and reserves Ordinary shares 23,000 Reserves 247,000 270,000 Non-current liabilities 5% Preference shares 5,000 6 % loan notes 11,000 Bank loan 3,000 19,000 289,000 The ordinary shares of Gidimadjor are currently trading at GH 426 per share on an ex dividend basis and have a nominal value of GH 025 per share. Ordinary dividends are expected to grow in the future by 4% per year and a dividend of GH 025 per share has just been paid. The 5% preference shares have an ex dividend market value of GH 056 per share and a nominal value of GH 100 per share. These shares are irredeemable. The 6% loan notes of Gidimajor are currently trading at GH 9545 per loan note on an ex interest basis and will be redeemed at their nominal value of GH 100 per loan note in five years time. The bank loan has a fixed interest rate of 7% per year. Gidimajor pays corporation tax at a rate of 25%. Required: a. Calculate the after-tax weighted average cost of capital of Gidimadjor on a market value basis. (10 marks) b. Discuss the connection between the relative costs of sources of finance and the creditor hierarchy. (5 marks) (Total: 15 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Modern Auditing

Authors: Graham Cosserat

2nd Edition

0470863226, 978-0470863220

More Books

Students also viewed these Accounting questions

Question

If f(x) = 3x 3 5ax 2 3a 2 x + 5a 3 , find f(x) (x + a).

Answered: 1 week ago