Solution-Calculate their weighted average cost of capital

Calculate their weighted average cost of capital

Assignment Help Accounting Basics

Reference no: EM133175858

Question - Brozierz Ltd, operate in the engineering industry. They feel that some of their older equipment need to be replaced. They seek your help to calculate their cost of capital. Their present capital structure is as follows:

300,000 $2 ordinary shares now trading at $2.40 per share.

100,000 preference shares trading at $2.50 per share (issued at $3 per share).

10% p.a. fixed rate of interest.

A bank loan f $500,000 at 12% p.a. (payable in 5 years' time).

Additional information:

The company's beta is 1.4. A return on market of 15% and a risk free rate of 6%.

Its current tax rate is 28%.

Its current dividend is $0.50 per share and they expect their dividend to grow by 7% p.a.

Required -

1. Assuming that the company uses the Capital Asset Pricing Model (CAPM) to calculate their cost of equity, calculate their weighted average cost of capital.

2. A further $750,000 is needed to finance the expansion. Which option should they use (from ordinary shares, preference shares or loan financing) and why?

Reference no: EM133175858

Questions Cloud

What is the yield to stanford corporation : Stanford Corporation arranged a repurchase agreement in which it purchased securities for $4,900,000. What is the yield to Stanford Corporation

Case study-the state of ethics at ibm : One advantage IBM has in meeting its standards for trust is that it is part of a relatively trusted industry. In the Edelman Trust Barometer, an annual survey o

What are the it challenges of the costco wholesale : Brief Explanation on the given topics for the organisation of Costco Wholesale.

Best pursuers of incremental innovation : Which companies in these examples appear to be the best pursuers of incremental innovation? Also, of breakthrough innovation?

Calculate their weighted average cost of capital : Assuming that the company uses the Capital Asset Pricing Model (CAPM) to calculate their cost of equity, calculate their weighted average cost of capital

Calculate comprehensive income for staffordshire products : Calculate the comprehensive income for the Staffordshire Products Company given the information below. Positive amounts are unrealized gains

Identify the types of unethical behaviours : 1. Find the dispute resolution method that is available for students at your educational institution. Which method does it most resemble among those discussed i

Prepare the journal entries related to disposal of machine a : Machine A: Sold on January 2, for $39,000 cash. Prepare the journal entries related to the disposal of Machine A and Machine B on January 2 of the current year

Name a business or non-profit organization : Give what is being asked. Refer to the scoring guide below for your answer.

User Account

All Pages

Calculate their weighted average cost of capital

Reference no: EM133175858

Reference no: EM133175858

Questions Cloud

Reviews

Write a Review

Accounting Basics Questions & Answers

How much control does fed have over this longer real rate

Coures:- fundamental accounting principles

Accounting problems

Theory of interest - term structure of interest rates

Write a report on internal controls

Prepare the bank reconciliation for company

Cost-benefit analysis

Theory of interest

Liquidity and profitability

What is the expected risk premium on the portfolio

Simple interest and compound interest

Capm and venture capital

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT