Question

Nthanda PLC is an International food retailing company financed by both deo capital. The total market value of company's equity is K26.4 million ex-dividends, currently quoted on LuSE K120 cum-Div. The company has recently paid a total dividendo to its shareholders. This is in line with the company's policy of increasing dividends by 3% per annum. Nthanda has an equity beta value of 1.86. The yield on short-term government debt is 7% and equity risk premium is 7.4%. Nthanda PLC has K50, 000 9% irredeemable preference shares in issue with a nominal value of each share of K1. They are currently quoted at 72 ngwee ex-dividend in the market. In addition, the company has issued K12.6 million of 8% irredeemable bonds. They are currently quoted at K80, ex interest. Corporate tax currently stands at 35%. Required: A. Calculate the cost of: Equity using the dividend growth model (1.5 Marks) Equity using the Capital Asset Pricing Model (CAPM) (1.5 Marks) (iii) Nthanda's Preference shares (1 Marks) (iv) Nthanda's Irredeemable bonds (1 Marks) B. Calculate the WACC for Nthanda PLC Using i. Book Values ( 4 Marks) ii. Market Values (3 Marks) iii. Give three examples of Corporate Financial decisions and briefly explain them. (3 Marks)

corporate finance

Answer 1

Answer A-1)

number of shares = Market Value / Price per share =26400000/120 = 220000

Dividend per share = Total dividend / Number of share = 4000000 / 220000= K 18.182

Cost of equity as dividend = Dividend / Value of equity = 18.182/120=0.1515 i.e. 15.15%

Answer A-2) As per CAPM

Return = Risk Free + Beta* Risk premium = 7% +1.86*7.4% = 20.76%

Answer A-3) Preference Share = 9%

Answer A-4) cost of debt = interest *(1-tax) = 8% *(1-35%) = 5.2%.

Answered the first four questions as per policy , kindly re-post the remaining