Little Pear is subject to a company tax rate of 30%. The company asks you to assess and calculate the after-tax (where relevant) cost of each of the following sources of funds:

a. Ordinary $1 shares expect the next dividend payment to be $0.102 per share, which is expected to grow at a rate of 2% in perpetuity. The current market price is $1.20.

b. What is the cost of $100,000 in retained earnings?

c. 10% preference shares of $2 with a current market price of $2.50.

d. 9% debentures with an issued value of $100, redeemable in four years at $100 with a current market price of $90.90.

Q2. List 4 complex taxation issues a business should escalate to a tax agent or accounting firm.

Answer rating: 100% (QA)

AfterTax Cost of Funds for Little Pear a Ordinary Shares These are growth shares so we can use the Gordon Growth Model GGM Cost of Equity Ke Dividend ... View the full answer