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Please kindly help with answering these questiona Suppose you have been hired as a financial consultant to Shelby Appliances Ltd, a large publicly listed company.
Please kindly help with answering these questiona
Suppose you have been hired as a financial consultant to Shelby Appliances Ltd, a large publicly listed company. The company is looking at building a manufacturing plant to produce a new line of electricity saving appliances. The company estimates that it will cost R6.5 million to build the plant. Consider the following current market data on Shelby's securities: Debt: 10 000, 7% coupon bonds, 15 years to maturity, selling at a discount of R900. The bonds have a R1 000 par value each and make semi-annual payments. Ordinary shares: 283 200 shares in issue, selling for R50 per share; the share's beta coefficient is 1.2. Preference shares: 10 000, 7.5% preference shares in issue selling for R84 per share. The preference shares have a par value of R100. Market: 8% expected market risk premium; 7% risk free rate. Other information: Shelby's pre-tax cost of debt is 8.17% and the applicable tax rate for Shelby is 28%. 2.1 Calculate the relevant market value capitalisation weights of the debt, preference shares and ordinary shares. Provide your answers only on Moodle. [6] Debt Shares = a) Market Value b) Weight Ordinary Shares = c) Market Value d) Weight Preference Shares = e) Market Value f) Weight 2.2 Calculate the after-tax cost of debt. Provide your final answer only [2] [2] 2.3 Calculate the cost of ordinary shares. Provide your final answer only 2.4 Calculate the cost of preference shares. Provide your final answer only [2] 2.5 Compute the project's weighted average cost of capital (WACC). Provide your final answer only [3] Step by Step Solution
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