Question 2 - Capital Raising and dividend policy (15 marks)

A) Hexagon Ltd, a high-technology company in Victoria, issues a $50 million IPO with an offer price of $50 per share. The firm receives $46 per share, and the companys legal fees, ASIC registration fees and other administrative costs are $700, 000. The companys share price increased to $55 on the first day. What is the companys total cost of issuing the securities?( 9marks)

B)Interest tax shield benefit: Harman Ltd has $250 million of debt outstanding at an interest rate of 11 per cent. What is the present value of the debt tax shield if the debt has no maturity and if Harman is subject to a 30 per cent company tax rate? (6 marks)