1. A company's share price is currently $4.72. Its most recent dividend was 50 cents per share; dividends are expected to grow indefinitely at a rate of 4% pa and the tax rate is 30%. The company's before-tax cost of retained earnings is:

2. Given a company tax rate of 30%, dividend payments of $5 and net proceeds of from issue of $70, the before-tax cost of preference shares is:

3. Feisty Removals is financed with preference shares (20%) and ordinary shares (80%). The cost of each of these sources of capital is 8% and 12% respectively. The Weighted Average Cost of Capital (WACC) for Feisty Removals is:

4. A project has an initial outflow of $400 000.However, the project will generate an instantaneous inflow of $150 000. The project will generate a net inflow of$2 000 000 next year, an outflow of —$100 000 the year after. In the following year, a terminal value of $50 000 is expected to be realised. Given a cost of capital of 15%, the expected NPV of this project is:

5. Kadavu Corporation has l million ordinary shares outstanding and a price-earnings multiple of 25. The firm's annual earnings is $500 000. It is considering a 20% bonus share issue to supplement its current low cash dividend policy.

 What is the firm's current share price?

How will the proposed bonus share issue affect the current share price?

Suppose you hold 100 Bell shares. What will be the impact of a bonus issue on the total value of your shares?

6. Alafua Herbal is a Samoan biotechnology company that develops vaccines. It needs to raise$20 million to fund new research. It has 10 million ordinary shares on issue, and these are currently selling on the South Pacific Stock Exchange (SPSE) for $13.20. The directors decide to make a 1-for-5 rights issue at $10 subscription. What is the theoretical price of a right?

Answer rating: 100% (QA)

1 The beforetax cost of retained earnings can be calculated using the Gordon Growth Model Dividend D... View the full answer