ENSC 200 Lecture : Equity
Get access
Related Documents
Related Questions
The Kanaks Bhd has the following capital structure in 2012: | |
RMâ 000 | |
1 m Ordinary shares of RM1 each | 1,000 |
400,000 Preference shares of RM0.50each | 200 |
7% Redeemable Debentures RM1 each | 200 |
Total | 1,400 |
Additional Notes:
The ordinary shares have a current market value of RM1.20 pershare, and a dividend of RM0.06 per share has just been paid.Dividend growth is expected to be at a rate of 12% per year.
The preference shares have a current market value of RM0.60 pershare and the rate of dividend is 8%.
The redeemable debentures have a coupon rate of 7% and a currentmarket price
of RM94 per RM100 block. These areredeemable in 8 years time.
4. Corporation tax rate is to be taken as 30%
Required: | ||
a. | Calculate the weighted average cost ofcapital for Kanaks Bhd using market | |
values | ||
b. | Explain why it is considered preferableto use market values rather than | |
book values when making thiscalculation. | ||
c. | Discuss the importance of gearing to apotential investor in some ordinary shares in | |
Kanaks Bhd. |