Jay Kay Company has the following capital structure at December 31, 2005 which considered being optimum:...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Jay Kay Company has the following capital structure at December 31, 2005 which considered being optimum: Amount (Rs.) 300,000 Item 7% Debentures 9% Preferrence Shares (Rs.20 each) Equity (10,000 shares) Question 3: 100.000 600,000 1,000,000 Total The company's shares are selling at a current market price of Rs.23.60 per share. The expected dividend per share next year is 50 % of the 2005 EPS. The following are the earnings per share figures for the company during the preceding ten years. The past trends are expected to continue: Year EPS Year EPS 1996 1.00 2001 1.80 1997 I.12 1.30 2002 2.15 1998 2003 2.40 1999 1.48 2004 2.55 2000 1.62 2005 2.80 The new debentures can be issued at a coupon interest rate of 8%. The company's debenture is currently selling at Rs.96. The new preference issue will fetch a net price of Rs. 20 paying a dividend of Rs.2 per share. The company's marginal tax rate is 50%. Required: Assume that company needs to raise Rs.600.000 next year and its retained earnings are Rs.200,000. Of the total funds intended to be raised, the proportion of equity should be Rs.360,000. Thus the company will have to raise Rs.160,000 by issuing new shares. Assuming that company incurs floatation cost on new equity shares equal to 10%. Remaining amount will be raised through debentures and preference shares in the existing proportion. Caleulate WMCC and revised WACC. Jay Kay Company has the following capital structure at December 31, 2005 which considered being optimum: Amount (Rs.) 300,000 Item 7% Debentures 9% Preferrence Shares (Rs.20 each) Equity (10,000 shares) Question 3: 100.000 600,000 1,000,000 Total The company's shares are selling at a current market price of Rs.23.60 per share. The expected dividend per share next year is 50 % of the 2005 EPS. The following are the earnings per share figures for the company during the preceding ten years. The past trends are expected to continue: Year EPS Year EPS 1996 1.00 2001 1.80 1997 I.12 1.30 2002 2.15 1998 2003 2.40 1999 1.48 2004 2.55 2000 1.62 2005 2.80 The new debentures can be issued at a coupon interest rate of 8%. The company's debenture is currently selling at Rs.96. The new preference issue will fetch a net price of Rs. 20 paying a dividend of Rs.2 per share. The company's marginal tax rate is 50%. Required: Assume that company needs to raise Rs.600.000 next year and its retained earnings are Rs.200,000. Of the total funds intended to be raised, the proportion of equity should be Rs.360,000. Thus the company will have to raise Rs.160,000 by issuing new shares. Assuming that company incurs floatation cost on new equity shares equal to 10%. Remaining amount will be raised through debentures and preference shares in the existing proportion. Caleulate WMCC and revised WACC.
Expert Answer:
Answer rating: 100% (QA)
The marginal tax rate is the tax charge you pay on a further dollar of income within the America the federal marginal tax charge for individuals will ... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
Cullen Corporation Ltd. has the following capital structure at December 31, 2011, its fiscal year end: The following additional information is available. 1. On July 31, 2011, Cullen Corporation...
-
The Prince-Robbins partnership has the following capital account balances on January 1, 2015: Prince, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,000 Robbins, Capital . . ....
-
The Mori Egg Noodle Company has the following equity accounts on its balance sheet: Common stock ($10 par, 300,000 shares) .... $ 3,000,000 Contributed capital in excess of par ...... 1,500,000...
-
During the year ended 30 June 20X5, Gem Stone Ltd acquired two areas of interest Site A and Site B. The exploration and evaluation activities at Site A amounted to $64454401. The costs relate to the...
-
The following information is from the books of Towl Ball Company for the month of April. Cash Receipts Journal Date Cash Received April 2 .......... $ 2,500 5.................... 2,000...
-
Without using truth tables, show that {[(p ( q) r] ( p} ( [(p q) ( r]?
-
A light flashes at position \(x=0 \mathrm{~m}\). One microsecond later, a light flashes at position \(x=1000 \mathrm{~m}\). In a second reference frame, moving along the \(x\)-axis at speed \(v\),...
-
Taking R = 1.00 k Ω and ∑ 250 V in Figure P28.25, determine the direction and magnitude of the current in the horizontal wire between a and e. 2R 4R 3R 2
-
Consider a dynamic (two-period) macroeconomic model with a representative household, a representative firm, and a government. The representative household makes consumption- saving and labor supply...
-
A textile company produces shirts and pants. Each shirt requires two square yards of cloth, and each pair of pants requires three square yards of cloth. During the next two months the following...
-
What is the output of the system with n 1 h[n] = u(n) in response to the input 2 x[n] = 3+ cos an+- 3 (A) yln] =3+ 1 Cos tn + 3 (B) y[n] = 3+ 2 Cos tn +- 3 (C) yln] =1+ sin an+ 3 (D) An] = 6+ 2 cos...
-
Describe the three phases of the labor relations process. Why are all phases equally important?
-
How did the Social Security Act change the way retirement benefits were viewed?
-
Respond to this statement: Diverse leadership is a competitive advantage. What is the most compelling business argument for or against diverse leadership teams?
-
Does the organization face any of the following problems? If so, how does the organization address them? Wage compression Employees topping out of their salary range High prevalence of employee...
-
While this chapter discussed the many benefits of diversity, an alternative view suggests that no empirical evidence exists that a diverse workforce has a positive effect on organizational...
-
discuss which key approaches you would pursue for achieving success in content marketing. Briefly explain with an example. Identify the mobile marketing channels/techniques that are most suitable to...
-
Players A, B, and C toss a fair coin in order. The first to throw a head wins. What are their respective chances of winning?
-
1. In January 2013, Vorst Co. purchased a mineral mine for $2,820,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Vorst believes it will be able to sell the...
-
Bingham Smelting Company entered into a 15-year non-cancelable lease beginning January 1, 2013, for equipment to use in its smelting operations. The term of the lease is the same as the expected...
-
Dutch Truck Sales sells semitrailers. The current inventory includes the following five semitrailers (identical except for paint color) along with purchase dates and costs: Semitrailer...
-
a. Show that the mean-squared forecast error \(E\left[\left(\hat{y}_{T+1}-y_{T+1} ight)^{2} \mid I_{T} ight]\) for a forecast \(\hat{y}_{T+1}\), that depends only on past information \(I_{T}\), can...
-
Consider the AR(1) model \(y_{t}=\delta+\theta y_{t-1}+e_{t}\) where \(|\theta|)=0\) and \(\operatorname{var}\left(e_{t} \mid I_{t-1} ight)=\sigma^{2}\). Let \(\bar{y}_{-1}=\sum_{t=2}^{T} y_{t}...
-
Consider a stationary model that combines the \(\operatorname{AR}(2)\) model \(y_{t}=\delta+\theta_{1} y_{t-1}+\theta_{2} y_{t-2}+e_{t}\) with an \(\mathrm{AR}(1)\) error model \(e_{t}=ho...
Study smarter with the SolutionInn App