Reference no: EM132725608
GAA6004 Accounting and Finance - Gulf College
LO 1: Apply relevant knowledge and skills in making decisions relating to investment, financing, capital structure & dividend policies
LO 2: Estimate costs of various sources of medium & long-term finance of a company's WAAC
LO 3: Optimal capital structure theories: Discussion of traditional view vs MM pre/post-tax theories & practice.
LO 4: Valuation of shares & companies: Asset- and earnings-based approaches; free cash flow; dividend growth & CAPM models.
Assessment Task
You are required to carry out the following tasks in the order they are given to you and prepare a report of 2,800 words.
Task 1:
Sara Ltd is manufacturing steel at its plant at Sohar. Due to economic growth, the steel demand is also growing. The Company is planning to set up a new steel plant at Muscat. It needs OMR 800,000 to start the new plant. It decides to raise OMR 300,000 through debentures, OMR 200,000 through long term loan from banks and OMR 200,000 by the issue of equity shares to the public. It decided to finance the remaining amount by utilising its reserves and surplus. In the discussion of this topic, you are required to prepare a report of 1,600 words.
a. Discuss the importance of Financial planning for the Company. (200 words)
b. Calculate the Capital Structure of the Company using the debt to equity ratio. (200 words)
c. Critically analyse the Capital Structure of the Company. (300 words)
d. Identify the Financial decision involved when the Company decides to raise OMR 800,000 from different sources of funds. (300 words)
e. Critically analyse the Dividend policy of Sara Ltd and discuss the factors to be considered for Dividend decision. (300 words)
f. Critically discuss the various Share valuation techniques which help to Sara Ltd.(300 words)
Task 2:
Sameer plc, a listed industrial Company, is considering a major investment. The Company needs an appropriate rate at which to discount the estimated after-tax cash flows for the investment. The Company's normal practice is to be based on the weighted average cost of capital (WACC). The Company's balance sheet shows 160 million Ordinary shares of OMR 0.50 each at OMR 80 million, the Preference shares of OMR 32 million and 8% Loan stock of OMR 45 million.
The Ordinary shares have a market price of OMR 2.100 and an expected dividend of OMR 0.180 per share. Dividends have shown an average annual growth rate of 5% over recent years. The Company's Preference shares are selling at OMR 0.870 per share and carry a dividend of 7% per share. The Company currently has Loan stock with an 8 percent coupon rate and has a market value of OMR
100. The Loan stock is redeemable at par. The corporation tax rate is expected to be 30% for the foreseeable future. In regard to this topic, you are required to prepare a report of 1,200 words.
Pg. 4 Version 1
a. Compute the cost of capital for individual components and calculate the Company's WACC.(300 words)
b. Explain the workings and discuss the assumptions of cost of capital. (400 words)
c. Critically discuss the criticisms of using the figure calculated in (a) as the discount rate for assessing the investment under consideration by the Company. (300 words)
d. Recommendations and conclusions.
Attachment:- Accounting and Finance.rar