Consider the following information: Extract of balance sheet for COCO Ltd. as at 30 March 2020:...

  

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Consider the following information: Extract of balance sheet for COCO Ltd. as at 30 March 2020: Equity $'000 Issued And Paid-Up Capital 25m 30c ordinary shares 15.5m $1 2.5% preference shares Reserves and Retained Profits Retained profits Share premium reserve General reserve Debt Mortgage Debentures Bank overdraft 7,500 15,500 7,000 8,200 6,000 44,200 3,200 4,580 10,555 18,335 You also have the following additional information available to you as of today: The current market price of the firm's ordinary shares is $2.80. The firm's preference shares are currently selling for $1.20 each. The debentures will mature in 5 years. They have a coupon rate of 7% per annum. If the company currently sought long-term finance it would have to pay interest rates of 9.2% per annum on debentures. An amount of $3,800,000 is owing on the mortgage and has 5 years remaining and was taken out at 10% current rates are 12%. The firm is currently paying 7% per annum on its bank overdraft loan. Interest on debentures, mortgage and the bank overdraft is paid half-yearly. The corporate tax rate is 30 cents in the dollar. The estimated Beta of the company's ordinary shares is 1.8. The current yield on a 10-year government bond is 4.5% per annum. The expected return on the market portfolio is 11% per annum. Required: a) Which items in the balance sheet should not be included in the calculation of WACC? b) Calculate the market value of each relevant item. c) Calculate before and after tax costs and WACC. Display your results in the table below. Show your full working out. Fill in the table below. Component Market Value Weighting Before-Tax (1 + 10 + 4 = 15 points) After-Tax Weighted Consider the following information: Extract of balance sheet for COCO Ltd. as at 30 March 2020: Equity $'000 Issued And Paid-Up Capital 25m 30c ordinary shares 15.5m $1 2.5% preference shares Reserves and Retained Profits Retained profits Share premium reserve General reserve Debt Mortgage Debentures Bank overdraft 7,500 15,500 7,000 8,200 6,000 44,200 3,200 4,580 10,555 18,335 You also have the following additional information available to you as of today: The current market price of the firm's ordinary shares is $2.80. The firm's preference shares are currently selling for $1.20 each. The debentures will mature in 5 years. They have a coupon rate of 7% per annum. If the company currently sought long-term finance it would have to pay interest rates of 9.2% per annum on debentures. An amount of $3,800,000 is owing on the mortgage and has 5 years remaining and was taken out at 10% current rates are 12%. The firm is currently paying 7% per annum on its bank overdraft loan. Interest on debentures, mortgage and the bank overdraft is paid half-yearly. The corporate tax rate is 30 cents in the dollar. The estimated Beta of the company's ordinary shares is 1.8. The current yield on a 10-year government bond is 4.5% per annum. The expected return on the market portfolio is 11% per annum. Required: a) Which items in the balance sheet should not be included in the calculation of WACC? b) Calculate the market value of each relevant item. c) Calculate before and after tax costs and WACC. Display your results in the table below. Show your full working out. Fill in the table below. Component Market Value Weighting Before-Tax (1 + 10 + 4 = 15 points) After-Tax Weighted

Answer rating: 100% (QA)

a The items in the balance sheet that should not be included in the calculation of WACC are the gene... View the full answer