Reference no: EM133290972

Creativity is at the heart of every dream. Every idea, every groundbreaking leap that changes our world starts with the vision of talented creators. DJI, is a company that gives creators the tools they need to bring their ideas to life.

DJI has in issue $108 million ordinary shares with a nominal value of $1 each. Currently, the market price of a share is at $6.70 per share and the dividend has just been paid. The average annual dividend growth rate is at 5% and the next year's dividend per share is expected to be 25 cents.

The company has also issued 10% bonds with a face value of $100 to raise total debt capital equal to $194 million. These bonds are redeemable in 10 years at par and currently, these bonds are trading in the market for a price of $122 per bond.

The finance manager of DJI has identified three possible investment projects, but the company only has access to a total of $3.7 million. The projects are not divisible and may not be postponed until a future period. The annual tax rate is 30%, and it is paid one year in arrears.

SHOW FORMULA AND WORKINGS OF

COST OF DEBTS

DEBTS TO EQUITY RATIO

WACC

PROJECT SPECIFIC COST OF EQUITY

Calculate the cost of debt, cost of equity, debt to equity ratio based on market values, the weighted average cost of capital and project-specific cost of equity.