Question

Queshon DATE. PLC is an international financed by both clebt and of food retailing equity capital. Nthanda Company The total market value k 26.4 million ex-dividends, currently company's equilty is Luse k 120 cum-Dividend. The quoted on Company has recently pould a totale dividend of k 4 million to its Shareholders. This is in line with the Company's policy of increasing dividends by 5% per annum. Nthanda has an equity beta value of 1.86. The yield on Short-term government debt is 7% and equity Irisk Premium is 7.4%... INthanda PLC has K50,000 9% Irredeemable preference - Shares in issue with a norminal value f each Share of kl. They are currently quoted at 72 nguee ex-dwidend in the market. In addition, the has issued Company *12.6 million g 8 % Irredeemable- are hant bonds. They currently quoted at $80, ex- Corporate tax Currently stands at 35%. interest. REQUIRED A i Calculate Cost q equity using duidend growth I model. c) the Calculate Nihanda s redeemable bonds chim calculate Nthanda's WACC using Book values dins calculate the WACC for sthanda Using market values. ors Give three examples 7 Corporate finance decisions and briefly explain them.

Corporate finance

I need WACC calculaed for Nthanda PLC using Book values and Market Values.

Answer 1

To Calculate WACC as per book value we need K_{e= cost of Equity ,} K_d= cost of Debt and Kp and book value of all source of finance except debt because have same value in all case.

For K_{e= we calculate expected cost of equity through CAPM method}

_{Required rate = R(f)+R(p)*Beta}

_{where R(f) = risk free rate and R(p) Risk premium}

_{so, 7%+7.4%*1.86 = 20.76% is cost of equity.}

_{Now come to the WACC as per book value = E/V*Ke+D/V*kd*(1-t)+P/V*Kp}

E= Equity value, to calculate the book value of equity is dividend value/per share dividend) 400000/120 = 33333 share are outstanding

share price = 26400000/33333 = 792 per share value and book value = if face value of equity share is 10 (generally share have face value of 10 if it does not split) than 10*33333 =333330

D= bond Value = 12.6 million

P= Preference Value = 50000 of 1 per preference share

t= tax rate for tax shield 35%

V= Total Value of the company.

Solution-  V= E+D+P = 333330+12600000+50000 = 12983330

333330/12983330*20.76%+12600000/12983330*8%*(1-0.35)+50000/12983330*9%

5.61% WACC as per the book value.

Now As per the Market value where Equity have 26.4 Million market value and debt is same but preference share is 50000*72 = 3600000 value.

_{V= E+D+P = 26400000+12600000+3600000 = 42600000}

_{26400000/42600000*20.76%+12600000/42600000*8%*(1-0.35)+3600000/42600000*9%}

_{so, the WACC = 15.16% as per the market value.}