Part B Bruhaha Ltd (BL) is an Australian publicly listed firm on the ASX The company has a long term target capital structure of 50 ordinary equity, 10 preference shares, and 40 debt All shareholders of BL are Australian residents for tax purposes To fund a major expansion BL Ltd needs to raise a $200 million in capital from debt and equity markets BLs broker advises that they can sell new 10 year corporate bonds to investors for $105 with an annual coupon of 6 and a face value of $100 Issue costs on this new debt are expected to be 1 of face value The firm can also issue new $100 preference shares which will pay a dividend of $7 50 and have issue costs of 2 The company also plans to issue new ordinary shares at an issue cost of 2 5 The ordinary shares of BL are currently trading at $4 50 per share and will pay a dividend of $0 15 this year Ordinary dividends in BL are predicted to grow at a constant rate of 7 pa Calculate the total value and the quantity of debt BL will need to issue to maintain their target capital structure (2 marks) What will be the appropriate cost of debt for BL (8 marks) Calculate the total value and quantity of preference shares BL will need to issue to maintain their target capital structure (2 marks) What will be the appropriate cost of preference shares for BL (8 marks) Calculate the total value and quantity of ordinary shares BL will need to issue to maintain their target capital structure (2 marks) What will be the appropriate cost of ordinary equity shares for BL (8 marks) Calculate the Weighted Average Cost of Capital (WACC) for BL Ltd following the new capital raising (10 marks) BL Ltd has a current EBIT of $1 3 million per annum The CFO approaches the Board and advises them that they have devised a strategy which will lower the companys cost of capital by 0 5 How will this change the value of the company Support your answer using theory and calculations (10 marks) I have tried to calculated all workings with After Tax methods , but not sure whether I have to answer Question A G with after tax, or before tax Can you please clarify Any please explain why Please answer above question, not Question A G

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 03, 2024

Part B Bruhaha Ltd (BL) is an Australian publicly listed firm on the ASX. The company has a long-term target capital structure of 50% ordinary

Part B

Bruhaha Ltd (BL) is an Australian publicly listed firm on the ASX. The company has a long-term target capital structure of 50% ordinary equity, 10% preference shares, and 40% debt. All shareholders of BL are Australian residents for tax purposes.

To fund a major expansion BL Ltd needs to raise a $200 million in capital from debt and equity markets.

BLs broker advises that they can sell new 10 year corporate bonds to investors for $105 with an annual coupon of 6% and a face value of $100. Issue costs on this new debt are expected to be 1% of face value.

The firm can also issue new $100 preference shares which will pay a dividend of $7.50 and have issue costs of 2%.

The company also plans to issue new ordinary shares at an issue cost of 2.5%. The ordinary shares of BL are currently trading at $4.50 per share and will pay a dividend of $0.15 this year. Ordinary dividends in BL are predicted to grow at a constant rate of 7% pa.

Calculate the total value and the quantity of debt BL will need to issue to maintain their target capital structure. (2 marks)
What will be the appropriate cost of debt for BL? (8 marks)
Calculate the total value and quantity of preference shares BL will need to issue to maintain their target capital structure. (2 marks)
What will be the appropriate cost of preference shares for BL? (8 marks)
Calculate the total value and quantity of ordinary shares BL will need to issue to maintain their target capital structure. (2 marks)
What will be the appropriate cost of ordinary equity shares for BL? (8 marks)
Calculate the Weighted Average Cost of Capital (WACC) for BL Ltd following the new capital raising. (10 marks)
BL Ltd has a current EBIT of $1.3 million per annum. The CFO approaches the Board and advises them that they have devised a strategy which will lower the companys cost of capital by 0.5%. How will this change the value of the company? Support your answer using theory and calculations. (10 marks)

I have tried to calculated all workings with "After Tax methods", but not sure whether I have to answer Question A-G with after tax, or before tax Can you please clarify?? Any please explain why....

Please answer above question, not Question A-G