AA Company is identical in all operating and risk characteristics to BB Company. The AA Company...
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AA Company is identical in all operating and risk characteristics to BB Company. The AA Company is full equity financed with a value of Rs.2,000,000 (market values). BB Co has debt valued at Rs.600,000 (based on market value) in its capital structure. The tax rate applicable for both AA Company and BB Company 28%. BB Company pays a dividend of Rs.50,000 per annum. AA Company pays an annual dividend of Rs.420,000. Cost of debt 8%. Required, i. Calculate the value of the equity of BB Co. (2 mark) ii. Calculate the cost of capital for AA Company. (2 mark) iii. Calculate the cost of equity for BB Company, and the cost of debt for BB Company. (2 mark) iv. Calculate the weighted average cost of capital for BB Company AA Company is identical in all operating and risk characteristics to BB Company. The AA Company is full equity financed with a value of Rs.2,000,000 (market values). BB Co has debt valued at Rs.600,000 (based on market value) in its capital structure. The tax rate applicable for both AA Company and BB Company 28%. BB Company pays a dividend of Rs.50,000 per annum. AA Company pays an annual dividend of Rs.420,000. Cost of debt 8%. Required, i. Calculate the value of the equity of BB Co. (2 mark) ii. Calculate the cost of capital for AA Company. (2 mark) iii. Calculate the cost of equity for BB Company, and the cost of debt for BB Company. (2 mark) iv. Calculate the weighted average cost of capital for BB Company
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i To calculate the value of the equity of BB Co we need to subtract the value of debt from the total ... View the full answer
Related Book For
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
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