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last digit is 7
OGDCL Company needs funds amounting PKR2m to purchase plant and machinery and to launch a new business, Moriarty Products, which will produce ready-made meals and trade as a division of OGDCL Company. Ready-made meals are a growth market, whereas OGDCL's Business is in long-term decline. OGDCL's current CEO, Muneer Ahmad, has to forecast the consequence of any decision on the stock price as well as on the cost of capital of the source. 1. Muneer Ahmad has asked you to suggest him with the following suggestions: a) The big decision facing companies when considering finance methods is choosing between debt and equity. What are the main considerations when making that decision? b) Why would a company choose to use retained earnings to fund expansion rather than pay a dividend? 2. Further, Muneer Ahmad has shortlisted some options in order to raise debt and equity and for that, he think to raise funds through bond issue. The terms of the issuance would be that a bond with a face value of PKR 1 000 will be issued which will carry a coupon rate of X%(X represents the second last digit of your registration number) has 10 years to maturity. From these features, what is the market price of this bond if the market interest rate is 12%? 3. Another option suggested by Muneer Ahmad is to raise funds through share issue and considering the current dividend of 40 Paisa per share OGDCL company has just paid which he expects to grow at X% per annum (where X represents the last digit of your registration number). From this, what should be the price of the share if the required return on investment is 12%? OGDCL Company needs funds amounting PKR2m to purchase plant and machinery and to launch a new business, Moriarty Products, which will produce ready-made meals and trade as a division of OGDCL Company. Ready-made meals are a growth market, whereas OGDCL's Business is in long-term decline. OGDCL's current CEO, Muneer Ahmad, has to forecast the consequence of any decision on the stock price as well as on the cost of capital of the source. 1. Muneer Ahmad has asked you to suggest him with the following suggestions: a) The big decision facing companies when considering finance methods is choosing between debt and equity. What are the main considerations when making that decision? b) Why would a company choose to use retained earnings to fund expansion rather than pay a dividend? 2. Further, Muneer Ahmad has shortlisted some options in order to raise debt and equity and for that, he think to raise funds through bond issue. The terms of the issuance would be that a bond with a face value of PKR 1 000 will be issued which will carry a coupon rate of X%(X represents the second last digit of your registration number) has 10 years to maturity. From these features, what is the market price of this bond if the market interest rate is 12%? 3. Another option suggested by Muneer Ahmad is to raise funds through share issue and considering the current dividend of 40 Paisa per share OGDCL company has just paid which he expects to grow at X% per annum (where X represents the last digit of your registration number). From this, what should be the price of the share if the required return on investment is 12%
