ACC742 - Principles and Determination Cost of Capital & Corporate Financial - Financial Assignment Help

Assignment Task -  

Question 1

The following information relates to the market valuation of Ceel Ltd, assuming the two different capital structures and using the MM (no tax) approach.

Assuming that there are no personal taxes, calculate the total market value of the company for both capital structures, where the company income tax rate is 30 cents in the dollar.

Question 2 

Miller Pty Ltd and Modigliani Pty Ltd are two identical companies with expected earnings (before interest and taxes) of $1.5 million per annum. The only difference between the two companies is that Miller Pty Ltd has issued debt securities to finance the identical activities that Modigliani Pty Ltd has financed with equity securities alone.

Details of the two companies are as follows:

An investor owns 600,000 shares in Miller Pty Ltd.

1. What is the current market value of the investor’s shares, and what is the investor’s income from Miller Pty Ltd. (10 marks)

2. Show how the investor can obtain an identical income with a lower net outlay.

Question 3 

Solomon Copra Exporters Ltd used the sources of finance listed in the table below as at 30 June 2020.

The following information is also provided:

• The commercial bills have a current interest rate of 6.08% p.a. The existing bills mature on 31st August 2020 but will be replaced by a further issue at that date.

• The interest rate on the bank overdraft is 9.5% p.a., calculated daily and charged to the business account twice per year.

• There are 100 bonds, each with a face value of $100,000 and a coupon rate of 10% p.a., payable on 30 June and 31 December each year. The bonds will be redeemed at their face value on 30 June 2023. On 30 June 2020 the market value of each bond was $102,474.18

• The preference shares are irredeemable with a face value of $2 paying a dividend rate of 8% p.a. Dividends is payable on 30 June and 31 December each year. On 30 June 2020 the market price of each preference share was $1.50

• The business pays dividend on its ordinary shares once per year. The latest dividend was 17.5 cents, fully franked, and on 30 June 2020 the market price of each ordinary share was $4.20.The business income tax rate is 30%.

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