Arusha Distributors, a distribution firm in Tanzania is considering opening a distribution center in Malawi. The firm
Question:
Arusha Distributors, a distribution firm in Tanzania is considering opening a distribution center in Malawi. The firm management believes that the distribution center has about the same risk as the firm’s current distribution center in Tanzania. Management therefore believes he firm’s current Weighted average cost of capital is the appropriate discount rate for finding the project NPV. The right hand side of the firm’s balance sheet shown here, reflects the market value of each capital component.
Capital Source | Market Value Tshs |
Bond 100,000 outstanding, 8% annual coupon rate Payable semi-annually, mature in 15 years, par value Tshs. 1000 | 64,636,183.00 |
Preferred stock, Tshs. 5 annual dividend, 2,000,000 shares outstanding | 71,420,000.00 |
Common stock, 13,000,000 shares outstanding | 312,000,000.00 |
Total | 448,056,183.00 |
The common stock just paid a dividend of Tshs. 2.25 per share. Dividends are expected to grow at 6% annually and the tax rate is 34%. Determine the Weighted Average Cost of Capital for this foreign project.
Auditing The Art And Science Of Assurance Engagements
ISBN: 9780136692089
15th Canadian Edition
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan, Joanne C. Jones