Information Concerning Raising New Capital Bonds 1 000 Face Value 13 Coupon Rate Ann 3714731

ASSIGNMENT This assignment is to be completed in groups of three and carries 30 per-cent of the marks in this unit. The following considerations will be applied when evaluating the submission: Questions 1,2 and 3 (23 marks) of this assignment MUST be completed on an Excel Spreadsheet. The use of an accurate Excel (for Windows) model: 1. The setting and presentation. 2. Accuracy of calculations and Analysis. Question 1. (11 marks) Information concerning raising new capital Bonds $1,000 Face value 13% Coupon Rate (Annual Payments) 20 Term (Years) $25 Discount offered (required) to sell new bonds $10 Flotation Cost per bond Preference Shares 11% Required rate to sell new preference shares $100 Face Value $3 Flotation cost per share Ordinary Shares $83.33 Current Market Price $4.00 Discount on share price to sell new shares $5.40 Flotation Cost per bond $5.00 2018 – Proposed Dividend Dividend History $4.63 2017 $4.29 2016 $3.97 2015 $3.68 2014 $3.40 2013 Current Capital Structure Extract from Balance Sheet $1,000,000 Long-Term Debt $800,000 Preference Shares $2,000,000 Ordinary Shares Current Market Values $2,000,000 Long-Term Debt $750,000 Preference Shares $4,000,000 Ordinary Shares Tax Rate 33% Risk Free Rate 5% a) Calculate the cost associated with each new source of finance. The firm has no retained earnings available. b) Calculate the WACC given the existing weights The financial controller does not believe the existing capital structure weights are appropriate to minimise the firm’s cost of capital in the medium term and believes they should be as follows Long-term debt 40% Preference Shares 15% Ordinary Shares 45% c) What impact do these new weights have on the WACC? The firm is considering the following investment opportunity. (2019-2026) Data is as follows Initial Outlay $1,600,000 Upgrade $700,000 End of Year 4 Upgrade – 350,000 Increased sales units per annum – (Year 5-8) Working Capital $45,000 Increase required Estimated Life 8 Years Salvage Value $60,000 Depreciation Rate 0.125 For tax purposes The machine is fully depreciated by the end of its useful life Other Cash Expenses $60,000.00 Per annum (Years 1-4) Other Cash Expenses $76,000.00 Per annum (Years 5-8) Production Costs $0.15 Per Unit Sales price $0.75 Per Unit (Years 1-4) Sales price $1.02 Per Unit (Years 5-8)