Question
Valley PLC is a leading company in Australia and you the below details relating to the capital structure of the company. Information concerning raising new
Valley PLC is a leading company in Australia and you the below details relating to the capital structure of the company.
Information concerning raising new capital
Bonds $1,000 Face value 13% Coupon Rate (Annual Payments)
QUESTION TWO COMPREHENSIVE QUESTION (CAPM, WACC, CF ANALYSIS) (15 Marks)
Preference Shares Ordinary Shares
20 Term (Years) $25 Discount offered (required) to sell new bonds $10 Flotation Cost per bond
11% Required rate to sell new preference shares $100 Face Value
$3 Flotation cost per share $83.33 Current Market Price
$4.00 Discount on share price to sell new shares
Dividend History
$5.40 Flotation Cost per bond $5.00 2021 - Proposed Dividend $4.63 2020 $4.29 2019
$3.97 2018 $3.68 2017 $3.40 2016
a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available.
Current Capital Structure
Extract from Balance Sheet $1,000,000
Long-Term Debt Preference Shares Ordinary Shares Long-Term Debt Preference Shares Ordinary Shares
Current Market Values
$800,000 $2,000,000 $2,000,000
$750,000 $4,000,000
Tax Rate 33% Risk Free Rate 5%
Valley PLC is a leading company in Australia and you the below details relating to the capital structure of the company.
Information concerning raising new capital
Bonds $1,000 Face value 13% Coupon Rate (Annual Payments)
QUESTION TWO COMPREHENSIVE QUESTION (CAPM, WACC, CF ANALYSIS) (15 Marks)
Preference Shares Ordinary Shares
20 Term (Years) $25 Discount offered (required) to sell new bonds $10 Flotation Cost per bond
11% Required rate to sell new preference shares $100 Face Value
$3 Flotation cost per share $83.33 Current Market Price
$4.00 Discount on share price to sell new shares
Dividend History
$5.40 Flotation Cost per bond $5.00 2021 - Proposed Dividend $4.63 2020 $4.29 2019
$3.97 2018 $3.68 2017 $3.40 2016
a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available.
Current Capital Structure
Extract from Balance Sheet $1,000,000
Long-Term Debt Preference Shares Ordinary Shares Long-Term Debt Preference Shares Ordinary Shares
Current Market Values
$800,000 $2,000,000 $2,000,000
$750,000 $4,000,000
Tax Rate 33% Risk Free Rate 5%
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Fundamental Accounting Principles Volume 2
Authors: Kermit Larson, Heidi Dieckmann
15th Canadian Edition
1259087360, 9781259087363
