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Question one
Jubal Ltd is a quoted company which is financed by 10,000,000 ordinary shares and Kshs. 50,000,000 of irredeemable 8% debentures. The market value of each share is Kshs. 20 ex-dividend and an annual dividend of Kshs. 4 per share is expected to be paid in perpetuity. The debentures are considered to be risk free and are priced at par.
Mr. Kilunda, the managing director of the company is wondering whether to invest in a project which would cost Kshs. 20 million and yield Kshs. 3.8 million a year before tax in perpetuity. The project has an estimated beta value of 1.25. The rate of return well-diversified portfolio is 16 percent.
Required:
a) The weighted average cost of capital of the company
b) The beta of the company
c) The beta of the equivalent ungeared company, ignoring taxes
d) Advise the company whether to undertake the projects using the results above
How is return on investment different from return on total equity? How does return on total equity differ from return on common equity?
Rhetorix, corporation produces stereo speakers.The selling price per pair of speakers is $900. The variable cost of production is $300 and fixed cost per month is $60,000.
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Outline the relative benefits to users of financial reports relating to information about the past, information about the present and information about the future.
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If WRC's cost of capital is 12% per year, is this a profitable agreement for WRC?
You want to buy a new sports coupe for $73,800, and the finance office at the dealership has quoted you a 6.2 percent APR loan for 60 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?
Calculate return and risk measures as formulated by Markowitz
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Prepare a report showing the practical application of Strategic Finance
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