Yahoo Finance for Ridley Corporation Limited (RIC.AX).

The assumptions are:

Risk free rate = 2.5%

Share beta = 0.60

ASX 200 (Stock market return) = 14%

Dividend payout ratio = 45%

Number of ordinary shares outstanding = 319490

Industry P/E1 ratio = 15 (where E1 denotes the next period's earnings)

Current traded price of an ordinary share = $2.0

Current market value of interest-bearing debt = $290,000

Cost of debt = 8.5%

Corporate tax rate = 30%

Floatation costs = 150 basis points

Questions: a) Calculate the value of a RIC share using the constant growth model. (3 marks)

b) Calculate the value of Ridley's using the industry P/E1 ratio. (2 marks)

c) Justify the differences between the two values calculated in parts a and b, if any. (1 mark)

d) Calculate the weighted average cost of capital. (2 marks)

e) Assume that Ridley will undergo a new expansion that requires $15 million to be raised in the bond market. Calculate the initial outlay for the expansion project adjusted for floatation costs. (1 mark)

f) Assume the following information about the bond issue: Coupon rate 11% with coupons paid semi-annually Discount rate 10% Term to maturity 5 years. Report the values of the first and last cash flows for this bond and calculate the price of one bond, assuming a face value of $1000. (2.5 marks)