Calculate the company weighted average costs of capital

Assignment Help Business Economics
Reference no: EM133227554

QUESTION 1.

Vendata Resources seeks to invest R10 million in a new mining project in order to expand its gold production capacity. The management of the company prefers to maintain the present 35% debt, 55% equity and 10% preference shares capital structure.

Debt financing can be obtained by issuing a 5-year R1 000 bond. The current price of the bond is R1 123 and it pays 10% coupons.

Vendata Resources has a beta of 1.3. The expected return on the market portfolio is 16% and the current risk-free rate is 8%.

The company is contemplating issuing 10% preference shares that are expected to sell for a par value of R60 per share. The cost of issuing and selling the shares is expected to be 5%. The tax rate is 29%.

1. Calculate Vendata Resources' component costs.

2. Calculate the company's weighted average costs of capital.

Reference no: EM133227554

Questions Cloud

Long-term and spot markets : Suppose the company is willing to use both the long-term and the spot markets. Suppose the company is willing to use both the long-term and the spot markets.
Investing risk : Explain why you feel this happens and provide specific reasons for both type of investors.
Average of historical market risk premium : We used the average of historical market risk premium. How does that affect investors'expected return?
Permanently disabled for superannuation purposes : Harvey is injured at work and permanently disabled for superannuation purposes.
Calculate the company weighted average costs of capital : Calculate Vendata Resources' component costs. Calculate the company's weighted average costs of capital.
Capital asset pricing model with Fama-French 3-factor model : Compare the capital asset pricing model with the Fama-French (FF) 3-factor model. Describe the function and impact of each risk factor.
Regarding margin accounts for long positions : Which of the following statements is NOT true regarding margin accounts for long positions? what date in February will the shares start trading ex-dividend?
What is the firm cost of ordinary equity : What is the firm's cost of ordinary equity? What is the firm's weighted average cost of capital? What will the project's effective after-tax WACC be with the ad
Corporate social responsible act : When managers initiate philanthropy, the Corporate Social Responsible act can decrease firm value due to what reasons:

Reviews

Write a Review

Business Economics Questions & Answers

  Retail and wholesale banking business

Larger commercial banks have a retail and wholesale banking business. The wholesale banking business involves which of the following:

  Using PPPs for making international comparisons

GDP per capital (nominal) would be the actual cash of the average person in the given country has per year. It equals GDP divide by the population. What is the alternative to using PPPs for making international comparisons? This answer will likely ex..

  Bond supply-bond demand model

Using the bond supply/bond demand model, graphically illustrate and explain the impact on i and q if the government were to simultaneously increase

  Dollar value of the total surplus

Use the willingness-to-pay information about the buyers (Ariel, Bridget, and Connie) and the willingness-to-accept information about the sellers (Daniel, Etienn

  Problem regarding the predetermined goal

Use the principles of supply and demand to address a predetermined goal (set by the student). Be clear on what the current market indicates and why and what your future goal is. We will probably revisit some of your choices in future modules.

  Will robotics be continuous problem for employment

Will robotics be a continuous problem for employment? What might be some of the costs of unemployment, to the unemployed worker and to the society

  Establish a study population

If you were to pursue probability sampling for this population, (single parenting)how would you establish a study population/sampling frame?

  Write that number to the output file along

Is to write a program (project) that asks the user to specify an input file and output file. Have the program read each number in the input file

  Some dramatic change in the market structure

There was some dramatic change in the market structure that the one firm merges all the firms in the aforementioned industry. That means now the industry has a monopolist. Find the price, quantity, and the level of profit that a monopolist will face...

  What is meant when the slope of a line is infinity

Explain what a slope of .5 would mean if you were measuring the relationship between consumer spending and income, where the dependent variable is consumer spending and the independent variable is income? Explain what is meant when the slope of a lin..

  Introduce pre-authorization review of hospital admissions

Health insurance companies in a country decided to introduce pre-authorization review of hospital admissions, i.e., all hospital admissions must be pre-authorized and the health care provider must contact the insurance agency to get the approval to a..

  Pros and cons of technology taking the place

Question: What are some of the pros and cons of technology taking the place of soldiers on the battlefield? For example, while the use of robots can help to minimize our soldiers' risks for injury/death, could it also desensitize us to the horrors..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd