advanced financial management, Financial Management

advanced financial management, Financial Management

Assignment Help:

QUESTION 1 [25 marks]
Xelo Ltd, whose current sales consist of fixed operating costs of R140 000 and variable operating costs equal to 22% of sales, has made the following two sales estimates with their noted probabilities.
Sales
Probabilities
R450 000
0.35
R710 000
0.65
Xelo Ltd is currently 100% equity financed with a total market value of R450 000, consisting of ordinary shares trading at R5 each. Xelo Ltd pays all its net income as dividends and is in a 15% tax bracket. The firm is considering using one of the following capital structures:
Debt ratio
Before-tax cost of debt (kd)
Required
30%
4%
17%
45%
7%
20%
REQUIRED
(a) Calculate the debt, equity and number of shares under each of the capital structures under consideration. [5]
(b) Calculate expected earnings per share (E/EPS) for the proposed capital structures. [7]
(c) Use the valuation model to estimate share value of both capital structures. [4]
(d) Based on the long-term and short-term goals of financial management, which capital structure would you recommend? [4]
(e) Based on the long-term goal, at what overall capitalisation rate would you capitalise the company and why? [5]

Related Discussions:- advanced financial management

Clientele effect, what is clientele effect?

what is clientele effect?

How premium and discount are determine while asset are ptm, Explain how the...

Explain how the premium and discount are determined while assets are PTM (priced-to-market). When would the law of one price prevail in international capital markets although if fo

Motivate the actions of a firms financial manager, Q. What goals should alw...

Q. What goals should always motivate the actions of a firm's financial manager and why? Answer: Please note that a minimum of 250 words is required on all responses to the d

Valuation models, V aluation Models A valuation model defines the e...

V aluation Models A valuation model defines the exercise of applying financial and economic principles to estimate the value of an asset. Discounted cash flow valuation mod

Ffnace management, What is the monthly interest rate if the lease payments ...

What is the monthly interest rate if the lease payments are $24,000 per month for 24 months. The total value is $420,000

Describe the meaning of net income plus depreciation, The so-called "cash f...

The so-called "cash flow" (net income plus depreciation) is a flow of cash, but is it a flow to the shareholders or to the company? Suppose that net income plus depreciation is

Operational cycle, discuss the applicability of the operational cycle in ve...

discuss the applicability of the operational cycle in vegetable growing business in uganda

No title, discuss the steps in the controlling process

discuss the steps in the controlling process

Important factors for successful budgetary control, IMPORTANT FACTORS FOR ...

IMPORTANT FACTORS FOR SUCCESSFUL BUDGETARY CONTROL 1. Clearly defined organization structure. 2. Top management support. 3. Reporting of deviations 4. Efficient acco

ISLAMIC FINANCE, SOURCES OF ISLAMIC FINANCE

SOURCES OF ISLAMIC FINANCE

Write Your Message!

Name

Email id

Message

Verfication Code

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd