ATC Bhd was founded 8 years ago by the current CEO, Mr. Han. Prior to ATC...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
ATC Bhd was founded 8 years ago by the current CEO, Mr. Han. Prior to ATC Bhd, Mr. Han business has experience bankruptcy, resulting him to be cautious with debt financing. ATC Bhd currently has 120 million of shares in issue and the current ex div ordinary share price is RM3.00 per share. The ordinary share dividends paid out were RM0.30 per share. Based on current trend, ordinary share dividends are expected to grow at a constant rate of 4% per annum for the foreseeable future. ATC Bhd also has in issue of bonds with a book value of RM72 million and their current interest market price is RM125 per RM100 bond. The current after tax cost of debt of ATC Bhd is 7% and the corporate tax rate is 26%. ATC Bhd is evaluating a new project with a cost of RM40 million. This project is expected to increase ATC Bhd annual pre-tax earnings by RM15 million in perpetuity. The finance director of ATC Bhd, Miss Kay, has heard that the market value of the company will increase if the weighted average of cost of capital is decreased. Miss Kay proposed to decrease the weighted average cost of ATC Bhd by issuing RM40 million bonds at their nominal rates of RM100 per bond. The bonds would pay annual interest of 8%. The bonds will be redeemed at 10% premium to nominal value after 10 years. b. C. Compute the current (before the new issue of bonds) weighted average cost of capital of ATC Bhd. (6 marks) After the new issue of the bonds take place, calculates: Cost of new bonds after tax Revised weighted average cost of capital i. ii. (8 marks) ATC Bhd was founded 8 years ago by the current CEO, Mr. Han. Prior to ATC Bhd, Mr. Han business has experience bankruptcy, resulting him to be cautious with debt financing. ATC Bhd currently has 120 million of shares in issue and the current ex div ordinary share price is RM3.00 per share. The ordinary share dividends paid out were RM0.30 per share. Based on current trend, ordinary share dividends are expected to grow at a constant rate of 4% per annum for the foreseeable future. ATC Bhd also has in issue of bonds with a book value of RM72 million and their current interest market price is RM125 per RM100 bond. The current after tax cost of debt of ATC Bhd is 7% and the corporate tax rate is 26%. ATC Bhd is evaluating a new project with a cost of RM40 million. This project is expected to increase ATC Bhd annual pre-tax earnings by RM15 million in perpetuity. The finance director of ATC Bhd, Miss Kay, has heard that the market value of the company will increase if the weighted average of cost of capital is decreased. Miss Kay proposed to decrease the weighted average cost of ATC Bhd by issuing RM40 million bonds at their nominal rates of RM100 per bond. The bonds would pay annual interest of 8%. The bonds will be redeemed at 10% premium to nominal value after 10 years. b. C. Compute the current (before the new issue of bonds) weighted average cost of capital of ATC Bhd. (6 marks) After the new issue of the bonds take place, calculates: Cost of new bonds after tax Revised weighted average cost of capital i. ii. (8 marks)
Expert Answer:
Answer rating: 100% (QA)
To compute the current weighted average cost of capital WACC of ATC Bhd we need to consider the cost of equity and the cost of debt a Cost of Equity T... View the full answer
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
Students also viewed these finance questions
-
Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The...
-
Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The...
-
Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The...
-
A fruit vendor professes to sell fruits at the cost price, but uses false weights. He gains 40% in this manner. What weight does he substitute for one kilogram?
-
We can use the gambling interpretation given in Exercise 28 to find the expected number of tosses required to reach pattern B when we start with pattern A. To be a meaningful problem, we assume that...
-
Consider a random process X (t) defined by X (t) = sin (2fct), in which the frequency f c is a random variable uniformly distributed over the interval [0, W]. Show that X (t) is non-stationary
-
Better Health Inc. is a health care provider which has clinics across the U.S. Indicate whether each of the following examples of benchmarking for Better Health is considered (1) internal...
-
Harlan City, a small city with revenues less than $ 10,000,000 a year, is planning to issue its first set of GAAP financial statements for the year ended December 31, 2013. To prepare for the...
-
FASB Statement 164 Not-for-Profit Entities: Mergers and Acquisitions requires mergers and acquisitions to be recorded using the carryover method
-
The City of Castletons General Fund had the following post-closing trial balance at June 30, 2022, the end of its fiscal year: Debits Credits Cash $ 265,120 Sales Taxes Receivable 11,000 Taxes...
-
Superior Essex, has performed different activities during the current year. The annual revenues of $185,000, expenses of $103,700, and withdrew $18,000 from the business during the current year. The...
-
4) Determine the support reactions for the system shown. There is a pin at A and a roller at B. The external force of 1000 N is applied at x = 2 meters. A F = 1000 N 4 meters B
-
Health economic decisions surround us as consumers and for many as clinicians. Describe an instance of a health economic decision you have made in the last two months. 1) Describe the overall...
-
Marco Company shows the following costs for three jobs worked on in April. Job 306 Job 307 Job 308 Balances on March 31 Direct materials used (in March) Direct labor used (in March) Overhead applied...
-
UDG Healthcare plc Group Income Statement for the year ended 30 September 2020 Revenue Cost of a Cross profi Selling and distribution expenses Administrative expenses Other operating expenses Other...
-
1. Define "noble cause corruption" and provide an example of this mindset that is not discussed in any textbook. Could you please explain with further details. 2. Many police services include...
-
The Zipcar website provides details on membership and mentions a $ 7 . 0 0 monthly membership fee. A car can be rented for an hourly or daily rate. While the actual rate can vary, a car can be rented...
-
1. Use these cost, revenue, and probability estimates along with the decision tree to identify the best decision strategy for Trendy's Pies. 2. Suppose that Trendy is concerned about her probability...
-
You are discussing real options with a colleague. During the discussion, the colleague states, Real option analysis makes no sense because it says that a real option on a risky venture is worth more...
-
Warf Computers, Inc., was founded 15 years ago by Nick Warf, a computer programmer. The small initial investment to start the company was made by Nick and his friends. Over the years, this same group...
-
How would the analysis of real options change if a company has competitors?
-
Traditionally, accountants have been most involved with which portion of the HRM/payroll cycle? a. hiring b. payroll c. training d. performance evaluation
-
What is the formula for calculating equity per share?
-
Which of the following statements is true? a. Financial statements report the value of employee knowledge and skills. b. Turnover and absenteeism are costly. c. Outsourcing of HRM and payroll...
Study smarter with the SolutionInn App