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QUESTION THREE MG Ltd has the following capital situation:of 1 5 % / / year. They had a fifteen year term and $ 1 0
QUESTION THREE
MG Ltd has the following capital situation:of year. They had a fifteen year term and $ face value. They
are now selling to yield but interest is paid annually.
Preferred stock: shares of preference stock are outstanding, each
paying an annual dividend of on face value of $ They are now
selling to yield
Equity: MG Ltd has shares of common stock outstanding,
currently selling at $ share. The estimated cost of equity is year.
Required
a Determine MG Ltds market value based capital structure. marks
b Using market values, calculate the after tax cost of the debt for the
firm. marks
c Compute MG Ltds weighted average cost of capital, using market values
and what advice can you give the company regarding a potential capital
project with an expected rate return of per annum? marks
d Calculate the capital gearing ratio of this company assuming preference
shares are cumulative in nature. marks
e What advice would you give the company, given that the average gearing
for this industry is marks
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