Question
Nthanda PLC is an international food retailing company financed by both debt and equity capital. The total market value of companys equity is K26.4 million
Nthanda PLC is an international food retailing company financed by both debt and equity capital. The total market value of companys equity is K26.4 million ex-dividends, currently quoted on LuSE K120 cum-Div. with a par value of k100. The company has recently paid a total dividend of K4 million to its shareholders. This is in line with the companys policy of increasing dividends by 5% per annum. Nthanda has an equity beta value of 1.86. The yield on short-term government debt is 7% and equity risk premium is 7.4%. Nthanda PLC has K50, 000 9% irredeemable preference shares in issue with a nominal value of each share of K100. They are currently quoted at K72 ex-dividend in the market. In addition, the company has issued K12.6 million of 8% redeemable in 5 years bonds. They are currently quoted at K80, ex interest. Corporate tax currently stands at 35%. Required: A. Calculate the cost of: (i) Equity using the DVM (3 Marks) (ii) Equity using the Capital Asset Pricing Model (CAPM) (3 Marks) (iii) Nthandas Preference shares (2 Marks) (iv) Nthandas Irredeemable bonds (2 Marks)
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