Calculate the current price of the ordinary share

Reference no: EM132952216

Question

Treasure Island Ltd. currently has the following capital structure: Debt:Ordinary shares:Preferred shares:

$3,500,000 par value of outstanding non-callable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8.5%. The bond issue has face value of $1,000/bond and will mature in 20 years.

70,000 outstanding ordinary shares. The firm plans to pay a $4.50 dividend per share in the next financial year. The firm is maintaining 5% annual growth rate in dividend, which is expected to continue indefinitely.

45 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 13%.

Company tax rate is 30%.

Required: Complete the following tasks:

a) Calculate the current price of the corporate bond?

b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 11%?

c) Calculate the current value of the preferred share if the average return of the shares in the same industry is 10.5%

d) Calculate the current market value (rounded off to the nearest whole number) and capital structure of the firm (rounded off to two decimal places).Identify the total weights of equity funding

e) Compute the weighted average cost of capital (WACC) under the traditional tax system for the firm

Reference no: EM132952216

Questions Cloud

What is the ordering cost of inventory : Using the EOQ model, what is the ordering cost of inventory given an annual demand of 36,000 units, a cost per order of $400 and a holding cost per unit per yea

How can we turn strengths into opportunities : Strengths: What do we do best? What unique knowledge, talent, or resources do we have?

What are the emerging trends of industry : What are the emerging trends of your industry and an issue of particular interest to you in one of those trends. Where is the industry going?

Is there any way to properly forecast demand : Is there any way to properly forecast demand?

Calculate the current price of the ordinary share : Calculate the current price of the corporate bond and Calculate the current price of the ordinary share if the average return of the shares in the same industry

Identify some switching costs in healthcare : Identify some switching costs in healthcare? What could a healthcare organization do to minimize the impact of switching costs?

Calculate the multi-factor productivity : Calculate the multi-factor productivity for this operation in fees generated per dollar of input.

Pros and cons of different online cheating : 1.How significant a problem is cheating at the university level? In addition to facts in the case, you should feel free to offer examples from your own experien

Occupational safety and health management system : Develop an effective Occupational Safety and Health management system and how to implement it

User Account

All Pages