QUESTION 3 YORK Co. Ltd and HERT Plc, are two companies in the electronic car manufacturing...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
QUESTION 3 YORK Co. Ltd and HERT Plc, are two companies in the electronic car manufacturing sector. Both companies are listed on a major stock exchange in Asia. At the last meeting of its board of directors, YORK Co. Ltd, decided to acquire all the shares of HERT Plc. The following financial information has been gathered by the Chief Finance Officer, to determine the cost of capital needed for the proposed acquisition of HERT Pic. Ordinary Shares Retained earnings Total Equity YORK Co. Ltd. £ (million) 200 Page 3 of 8 53 253 YORK Co. Ltd has 10 million ordinary shares outstanding. HERT Pic's £72 million shares, were issued at £5 per share. The current 3-month treasury bill rate is 6%. The average return on the market is 15.5%. The price-earnings (P/E) ratio for the electric car manufacturing sector is 10. Applicable corporate tax rate is 25%. HERT Plc. £ (million) 72 35 107 Currently, the shares of YORK Co. Ltd are trading at £7/share. The equity beta of YORK Co. Ltd is 1.3. The company is also financed by a 4-year, 9% annual coupon bonds with a face value of £1000 per bond. The required yield for this bond is 6%. The company sold 5000 units of this bond. continue... 7002EFA HERT Pic's cost of equity is 7%. It has a current earning per share (EPS) of £2. The company has a policy to pay 40% of its annual earnings as dividends to shareholders. Its sustainable growth rate is 3%. Required: QUESTION a) Calculate the total market value of the bonds and the after-tax cost of debt for YORK Co. Ltd. (6 marks) b) Calculate the weighted average cost of capital (WACC) of YORK Co. Ltd on a market value weighted basis. (6 marks) c) Calculate the total value of the target company, HERT Plc, using: i) The Price/Earnings ratio valuation method ii) The Dividend Growth valuation method (4 marks) (4 marks) d) Discuss three ways in which high debt levels could negatively impact a firm's business. (5 mark [Total 25 mar QUESTION 3 YORK Co. Ltd and HERT Plc, are two companies in the electronic car manufacturing sector. Both companies are listed on a major stock exchange in Asia. At the last meeting of its board of directors, YORK Co. Ltd, decided to acquire all the shares of HERT Plc. The following financial information has been gathered by the Chief Finance Officer, to determine the cost of capital needed for the proposed acquisition of HERT Pic. Ordinary Shares Retained earnings Total Equity YORK Co. Ltd. £ (million) 200 Page 3 of 8 53 253 YORK Co. Ltd has 10 million ordinary shares outstanding. HERT Pic's £72 million shares, were issued at £5 per share. The current 3-month treasury bill rate is 6%. The average return on the market is 15.5%. The price-earnings (P/E) ratio for the electric car manufacturing sector is 10. Applicable corporate tax rate is 25%. HERT Plc. £ (million) 72 35 107 Currently, the shares of YORK Co. Ltd are trading at £7/share. The equity beta of YORK Co. Ltd is 1.3. The company is also financed by a 4-year, 9% annual coupon bonds with a face value of £1000 per bond. The required yield for this bond is 6%. The company sold 5000 units of this bond. continue... 7002EFA HERT Pic's cost of equity is 7%. It has a current earning per share (EPS) of £2. The company has a policy to pay 40% of its annual earnings as dividends to shareholders. Its sustainable growth rate is 3%. Required: QUESTION a) Calculate the total market value of the bonds and the after-tax cost of debt for YORK Co. Ltd. (6 marks) b) Calculate the weighted average cost of capital (WACC) of YORK Co. Ltd on a market value weighted basis. (6 marks) c) Calculate the total value of the target company, HERT Plc, using: i) The Price/Earnings ratio valuation method ii) The Dividend Growth valuation method (4 marks) (4 marks) d) Discuss three ways in which high debt levels could negatively impact a firm's business. (5 mark [Total 25 mar
Expert Answer:
Answer rating: 100% (QA)
Required Calculate the total market value of the bonds and the aftertax cost of debt for YORK Co Ltd The total market value of the bonds is 500000 The ... View the full answer
Related Book For
Purchasing and Supply Chain Management
ISBN: 978-1285869681
6th edition
Authors: Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Posted Date:
Students also viewed these finance questions
-
Calculate the total cost per unit of purchasing from Original Wire.
-
Company A expects to have 2000 direct labour hours of manufacturing capacity (innormal time) available over the next two months after completion of current regular orders. It is considering two...
-
Selling price per unit $750 Variable cost per unit $450 Annual fixed cost $180,000 Net income after tax $360,000 Tax rate 25% 1)Reduce the selling price by $60. The sales team forecast that with a...
-
Find each product. (8 m)( + m)
-
1. Describe at least four general strategies you would take to convince the client firm that the benefits of implementing a performance management system will far outweigh the costs and difficulties...
-
Determine the smallest couple moment which can be applied to the wheel of weight W1 that will cause impending motion. The cord is attached to the block of weight W2, and the coefficients of static...
-
The August 2025 transactions of Jackson Productions Ltd, which uses a job order costing system, are shown below. (Ignore GST.) 1. Raw materials purchased, $171 000. 2. Raw materials issued to...
-
The standard cost card for the single product manufactured by Prince Company is given below: Standard Cost Card'Per Unit Direct materials, 3.5 feet at $4 per foot . . . . . . . . . . . . . . . . . ....
-
Adapted from Harvard Business Review, May 05, 2020 James DeVaney. Gideon Shimshon, Matthew Rascoff and Jeff Maggioncalda The staggering impact of Covid-19 on education systems around the world is...
-
Cermco produces and sells specialty customer relationship management (CRM) solutions to small and medium-size businesses in the United States and Canada. The company is more than 20 years old and has...
-
Essay question: What does Charlotte Brontes novel Jane Eyre tell us about the life of governesses in the early Victorian period? You want to: * Get to the point quickly. You dont want to give a...
-
Discuss your thoughts on collective bargaining and its pros and cons.?
-
Thoughts on why if five students take a test and the scores are 95, 95, 90, 90, and 20 then the mean is 78. Even though the majority of the students scored 90 or above, the extreme outlier score of...
-
Provide two positive and two negative perceptions of unionization from a leadership perspective.
-
How to design a risk management system for working at heights? Give The importance to have a risk management in place.
-
How might you increase your credibility as a foundation for leadership?
-
Identifies the topic you have chosen for your final assignment and explains why you have chosen this topic (Note: It highly recommended that you meet with the instructor first to discuss your topic...
-
Is Ben Gibson acting legally? Is he acting ethically? Why or why not?
-
What advantages do these systems provide to the company that might not be available to a company that does not have these systems?
-
Ethical decisions that affect a buyer's ethical perspective usually involve the organizational environment, cultural environment, personal environment, and industry environment. Analyze this scenario...
-
How does attribution theory allow managers to justify workers behaviors?
-
What are common methods to measure a persons attitude?
-
Is stereotyping negative or positive? Why?
Study smarter with the SolutionInn App