Assuming the average industry standard WACC is around 6.256%. Comment on PTGC Ltd in relations to attracting
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Question:
- Assuming the average industry standard WACC is around 6.256%. Comment on PTGC Ltd in relations to attracting new investors and lenders. What recommendation would you give to PTGC Ltd to improve their WACC so it may align with the sector average rate?
PTGC Ltd. Balance Sheet as at 30 June, 202x | ||
Current Assets | $ '000 | $ '000 |
Cash | 50 | |
Accounts Receivable | 80 | |
Inventory | 120 | 250 |
Non-Current Assets | ||
Plant and equipment | 950 | |
Land and Building | 1100 | |
Goodwill | 140 | 2190 |
Total Assets | 2440 | |
Current Liabilities | ||
Accounts Payable | 280 | |
Provn for Long Service Leave | 85 | 365 |
Non-Current Liabilities | ||
Debentures | 550 | |
Mortgage loan | 220 | 770 |
Total Liabilities | 1135 | |
Net Assets | $1305 | |
Equity | ||
Share Capital: | ||
1,150,000 ordinary shares issued at $1.00 | 1150 | |
Retained earnings | 155 | |
Total Equity | $1305 |
Additional information:
- Current share price is $1.55
- Most recent dividend was $0.05 per share. Dividends are expected to grow by 7% per year.
- 550 Debentures were issued with a face value of $1,000 trading at par value of 8.5%
- The mortgage loan is currently at a variable rate of 8.9%.
- Calculate the WACC of PTGC using the above information. Assume a company tax rate of 30%. Note: All calculations should be made to at least three decimal places in parts of this task.
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