Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The net income after tax (before dividend) of Momo inc. is $ 7,320,000. The company paid an annual dividend of $ 0.10 per share to
The net income after tax (before dividend) of Momo inc. is $ 7,320,000. The company paid an annual dividend of $ 0.10 per share to preferred stock holders. Currently, the capital structure of the company is as follows:
Debenture bond
Preferred share (Number of preferred shares: 7,500,000)
Ordinary share
Market value
$ 10,000,000 $ 15,000,000 $ 5,000,000
$ 35,000,000
Cost
10% 12%
Knowing that the tax rate is 40%, answer the remaining questions.
a) Calculate the bond's coverage ratio.
b) Calculate the coverage ratio of the debenture.
c) Calculate the preferred stock coverage ratio.
d) Determine the required return on the preferred shares.
e) Assuming that all profits have been distributed as dividends and knowing that the expected growth rate on common stock dividends is 2% to infinity. Determine the return required by common shareholders.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started