Jio WiFi 83% 4 9:37 PM K Modi Costing 09/08/20, 9:36 PM All Media Section A-Compulsory Question 515 1. Stanhope Plc feel that the current capital structure is optimum but need to raise 200,000 for a new project. The company's financial manager has been asked to calculate a discount rate to apply to this project The company has an authorized share capital of million ordinary shares of El each of which 2.5 million have been issued. Also in issue is 2.000.000 of 10% debentures The ordinary shares are currently quoted at 3.45 cum dividend per share and the debentures are standing at 80 ex interest. A dividend of 25p is about to be paid and the annual interest payment on the debentures has been made recently. The debentures are redeemable in twelve years' time at a premium of 15% above par Dividends and earnings over the past few years have been as follows: Dividends Earnings beforetak 000 Ereningsetas 1000) DOO 2015 2016 18 2018 560 1270 2019 You may assume a steady rate of corporation tax at 40% You are required to (a) Calculate a discount rate which Stanhope Ltd. could use in its future investment appraisal 70 () Discuss the usefulness and limitations of the weighted average cost of capital as a discount rate to be used in the appraisal of new investment projects DON ko 50 2011 300 Page 2 of 4 ru Jio WiFi 83% 4 9:37 PM K Modi Costing 09/08/20, 9:36 PM All Media Section A-Compulsory Question 515 1. Stanhope Plc feel that the current capital structure is optimum but need to raise 200,000 for a new project. The company's financial manager has been asked to calculate a discount rate to apply to this project The company has an authorized share capital of million ordinary shares of El each of which 2.5 million have been issued. Also in issue is 2.000.000 of 10% debentures The ordinary shares are currently quoted at 3.45 cum dividend per share and the debentures are standing at 80 ex interest. A dividend of 25p is about to be paid and the annual interest payment on the debentures has been made recently. The debentures are redeemable in twelve years' time at a premium of 15% above par Dividends and earnings over the past few years have been as follows: Dividends Earnings beforetak 000 Ereningsetas 1000) DOO 2015 2016 18 2018 560 1270 2019 You may assume a steady rate of corporation tax at 40% You are required to (a) Calculate a discount rate which Stanhope Ltd. could use in its future investment appraisal 70 () Discuss the usefulness and limitations of the weighted average cost of capital as a discount rate to be used in the appraisal of new investment projects DON ko 50 2011 300 Page 2 of 4 ru