Riphean plc and silurian plc are two businesses operating

Assignment Help Corporate Finance

Reference no: EM13381740

Riphean plc and Silurian plc are two businesses operating in different industries from one another. They are both financed by a mixture of ordinary share and loan capital and both are seeking to derive the cost of capital for investment decision making purposes. The following information is available concerning the two businesses for the year to 30 November Year 8:

Riphean plc Silurian plc

Profit for the year £3.0m £4.0m

Gross dividends £1 .5m £2.0m

Market value per ordinary share £4.00 £1 .60

Number of ordinary shares 5m 1 0m

Gross interest yield on loan capital 8% 1 2%

Market value of loan capital £1 0m £1 6m

The annual growth rate in dividends is 5 per cent for Riphean plc and 8 per cent for Silurian plc.

Assume a 30 per cent tax rate.

Required:

(a) Calculate the weighted average cost of capital of Riphean plc and Silurian plc using the information provided.

(b) Discuss two possible reasons why the cost of ordinary share capital differs between the two businesses.

Reference no: EM13381740

Questions Cloud

Firm a has 10000 in assets entirely financed with equity : firm a has 10000 in assets entirely financed with equity. firm b also has 10000 in assets but these assets are financed

Find the future value fvratenperpmtpvtypefind the present : find the future value fvratenperpmtpvtypefind the present value pvratenperpmtfvtypepayment pmtratenperpvfvtypenumber of

Firm a has 20000 in assets entirely financed with : firm a has 20000 in assets entirely financed with equity.firm b also has 20000 in assets financed by 10000 in debt with

Insurance plays a big role in risk management for a : insurance plays a big role in risk management for a personal financial plan. outline an insurance plan for various

Riphean plc and silurian plc are two businesses operating : riphean plc and silurian plc are two businesses operating in different industries from one another. they are both

Lasting impressions company lasting impressions li company : lasting impressions company lasting impressions li company is a medium-sized commercial printer of promotional

A large national mco recently entered a major southwestern : a large national mco recently entered a major southwestern metropolitan market. the managed care plan anticipated that

1 sixty-five years old ashley taylor has received 300000 as : 1. sixty-five years old ashley taylor has received 300000 as a lump sum pension settlement. she has invested the money

You and your friends are thinking about starting a : you and your friends are thinking about starting a motorcycle company named apple valley choppers. your initial

User Account

All Pages