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QUESTION: BJ Ltd is a manufacturing company based in Kafue with over 2 0 0 0 employees. The company has in issue 1 0 %
QUESTION: BJ Ltd is a manufacturing company based in Kafue with over employees. The company has in issue bonds with a par value of K The interest on the bonds is payable semi annually. The pretax cost of the debentures is per annum. The bonds are redeemable for K after ten years. The management of BJ Ltd are confident that the company will have enough cash to redeem the bonds. The shares in BJ Ltd have a beta of The risk premium is and the risk free rate of return is BJ Ltd has ordinary shares in issue with a market price of K each. The profit after tax was K for the most recent financial year. BJ Ltd has a dividend cover of times and an average dividend growth rate of per annum. BJ Ltd pay corporate tax at the rate of per annum. Required; a Calculate the following for BJ Ltd: i Market value of the debentures. ii The cost of equity using the capital asset pricing model. iii The cost of equity using the dividend valuation model. iv The Weighted average cost of capital using the cost of equity calculated in part iii above. marks
QUESTION:
BJ Ltd is a manufacturing company based in Kafue with over employees. The company has
in issue bonds with a par value of K The interest on the bonds is payable semi
annually. The pretax cost of the debentures is per annum. The bonds are redeemable for
K after ten years. The management of BJ Ltd are confident that the company will have
enough cash to redeem the bonds.
The shares in BJ Ltd have a beta of The risk premium is and the risk free rate of return
is BJ Ltd has ordinary shares in issue with a market price of K each. The profit
after tax was K for the most recent financial year. BJ Ltd has a dividend cover of
times and an average dividend growth rate of per annum. BJ Ltd pay corporate tax at the
rate of per annum.
Required;
a Calculate the following for BJ Ltd:
i Market value of the debentures.
ii The cost of equity using the capital asset pricing model.
iii The cost of equity using the dividend valuation model.
iv The Weighted average cost of capital using the cost of equity calculated in part iii
above.
marks
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