Shareholder value and the cost of capital

Assignment Help Financial Management

Reference no: EM131182542

1) AJI Limited current share price is $20 and it has just paid a $1 dividend. As AJI is a mature firm, this $1 dividend is expected to grow at a rate of 4% per year. What is an estimate of the return shareholders of AJI Ltd expected to earn?

2) AJI also has preference shares outstanding that pays $2 per share fixed dividend. If this stock is currently priced at $24, what is the return that preference shareholders expect to earn?

3) AJI has issued a 5 year bond with a coupon rate of 11% and par value of $1,000. The price received by AJI was $1,200. What is AJI’s pre-tax cost of debt?

4) AJI has 5m ordinary shares outstanding and 1m preference shares outstanding. Its liabilities have a book value of $20m. If AJI’s ordinary and preference shares are priced as in parts a) and b), what is the market value of the AJI’s assets?

5) AJI faces a 30% tax rate. Given the information in parts a) – d), and your answer to those problems, what is AJI’s WACC?

Reference no: EM131182542

Questions Cloud

What is the forward rate of interest for the second year : The yield to maturity on one-year zero-coupon bonds is 7.1%. The yield to maturity on two-year zero-coupon bonds is 8.1%. What is the forward rate of interest for the second year? If you believe in the expectations hypothesis, what is your best guess..

Correct concerning the rules related to project analysis : Which one of the following is correct concerning the rules related to project analysis?

The future value of an annuity : A decrease in the interest rate and an increase in the number of time periods would increase the value of an annuity present value interest factor. An increase in the amount of an annuity payment will decrease the present value of the annuity. The fu..

About forms of business organization : Which of the following statements about forms of business organization is true?

Shareholder value and the cost of capital : AJI Limited current share price is $20 and it has just paid a $1 dividend. As AJI is a mature firm, this $1 dividend is expected to grow at a rate of 4% per year. What is an estimate of the return shareholders of AJI Ltd expected to earn? AJI has iss..

What is your holding-period return : You buy a ten-year bond that has a 7.75% current yield and a 7.75% coupon (paid annually). In one year, promised yields to maturity have risen to 8.75%. What is your holding-period return?

Find CSNs stock price using the FCFE method : CSN reported net income of $100 million last year. CSN expects net income to grow at 7% next year, at 5% in the following year, and then at a constant rate of 3.5% per year forever. CSN expects that its current ROE will remain constant forever. Find ..

The required return on shares in firms identified in parts : The required return on the shares in the firms identified in parts (i) and (ii) is 15% per annum (discount rate). Calculate the current share price in each part. The current dividend per share in Firm B is 80 cnets. This dividend is expected to grow ..

What are the projects annual cash flows during years : You are evaluating a proposal to buy a new machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine is depreciated using prime cost method (3 years useful life), and it would be sold after 3 year..

User Account

All Pages