The following information relates to two companies which trade in a Modigliani and Miller world: Sanlam Santam
Question:
The following information relates to two companies which trade in a Modigliani and Miller world:
Sanlam Santam
Cost of equity | 20% | 18% |
Cost of debt | 12% | - |
Dividends | 200 000 | 432 000 |
Interest | 150 000 | - |
Shares | 1000 | 1000 |
Suppose Sanlam ltd wishes to finance a major restructuring project whose total cost is N$75 Million. The company follows a residual policy on dividends. Earnings for the coming year are expected to be N$60 Million and the company maintains a debt to equity ratio of 0.5 (50%). An extract from the statements of financial position is shown below:
Statement of Financial position extract: 2018 2017
Equity: Ordinary shares of N$0.50 each N$5 000 000 N$5 000 000
Calculate the following:
I).dividend per share;
ii).the value of additional debt, and
iii).ordinary share capital to be raised in order to finance the restructuring project.
Fundamentals of Financial Management
ISBN: 9780273713630
13th Revised edition
Authors: James van Horne, John Wachowicz