Frost Co has a dividend pay-out ratio of 40% and has maintained this pay-out ratio for...

  

 

Transcribed Image Text:

Frost Co has a dividend pay-out ratio of 40% and has maintained this pay-out ratio for several years. The current dividend per share of the company is $0.50 per share and it expects that its next dividend per share, payable in one year's time, will be $0.52 per share. The capital structure of the company is as follows: Equity Ordinary shares (nominal value $1 per share) Reserves Debt Bond A (nominal value $100) Bond B (nominal value $100) Sm Sm 25 35 20 10 60 30 90 Bond A will be redeemed at nominal value in ten years' time and pays annual interest of 9%. The cost of debt of this bond is 9 83% per year. Bond A will be redeemed at nominal value in ten years' time and ays annual interest of 9%. The cost of debt of this bond is 9.83% per year. The current ex interest market price of the bond is $95-08. Bond B will be redeemed at nominal value in four years' time and pays annual interest of 8%. The cost of debt of this bond is 7.82% per year. The current ex interest market price of the bond is $102.01. Frost Co has a cost of equity of 12.4%. Ignore taxation. Calculate the following values for Frost Co: (i) ex dividend share price, using the dividend growth model; (ii) market value weighted average cost of capital. Frost Co has a dividend pay-out ratio of 40% and has maintained this pay-out ratio for several years. The current dividend per share of the company is $0.50 per share and it expects that its next dividend per share, payable in one year's time, will be $0.52 per share. The capital structure of the company is as follows: Equity Ordinary shares (nominal value $1 per share) Reserves Debt Bond A (nominal value $100) Bond B (nominal value $100) Sm Sm 25 35 20 10 60 30 90 Bond A will be redeemed at nominal value in ten years' time and pays annual interest of 9%. The cost of debt of this bond is 9 83% per year. Bond A will be redeemed at nominal value in ten years' time and ays annual interest of 9%. The cost of debt of this bond is 9.83% per year. The current ex interest market price of the bond is $95-08. Bond B will be redeemed at nominal value in four years' time and pays annual interest of 8%. The cost of debt of this bond is 7.82% per year. The current ex interest market price of the bond is $102.01. Frost Co has a cost of equity of 12.4%. Ignore taxation. Calculate the following values for Frost Co: (i) ex dividend share price, using the dividend growth model; (ii) market value weighted average cost of capital.