What is SHP’s Weighted Average Cost of Capital - Accounting and Finance Assignment Help

Assignment Task:

TASK:

Section 1: Short Answer Questions (20 Marks) You are required to attempt 4 questions out of given 5 questions below.

Question 1. (5 marks) Is there any standard or easily identifiable debt equity ratio that will maximise the value of a firm ? Why or why not ?

Question 2. (5 marks) In general, what is the formula for the present value of an annuity of C dollars per period at a discount rate of r per period, and what is the difference between an ordinary annuity and a perpetuity type annuity?

Question 3. (5 marks) Does a loan where interest is compounded monthly but you do not have to make the first loan payment for six months save you money? Explain.

Question 4. (5 marks) What is difference between the calculation of compounding interest and simple interest?

Question 5. (5 marks) Indicate the impact of the following corporate actions on cash using the letter I for an increase, D for decrease or N when no change occurs.

a) real estate is purchased and paid for with current debt.

b) A dividend is paid with funds received from sale of debt

c) Inventory is bought on credit .

d) A current abnk loan is repaid .

e) Next years’s taxes are prepaid .

f) Prefrence shares are issues

g) Sales are made on credit

h) Interest on non current debt is paid

i) Payments for previous sales are collected

j) The accunts payable balance is reduced. © Macleay College 2021. 3

Section 2: Written questions and Practical Calculations (80 Marks) You are required to attempt 4 questions out of given 5 questions below. Each question is worth 20 marks. You need to answer all required parts of a chosen question as some questions have sub parts.

Question 1. (20 marks) The following information relates to SHP Ltd. SHP has 7 million ordinary shares on issue, which are currently trading for $12.00 each. These shares are expected to pay an annual dividend of $1.00 next year, and this dividend is expected to grow at a constant rate of 2% in perpetuity. SHP has 5 million preference shares on issue, which are currently trading for $10.00 each, giving a total market value of $50 million. They pay an annual dividend of 50 cents per share. SHP has 10,000 bonds outstanding with a face value of $1,000 each, which have 5 years to maturity and pays an-annual 10% coupon. The yield on the bonds is 10% p.a. SHP’s corporate tax rate is 30%. a. What is SHP’s cost of debt? ( 2 marks)

b. What is SHP’s cost of preference share capital? (2 marks)

c. What is SHP’s cost of ordinary share capital? (2 marks)

d. What is SHP’s Weighted Average Cost of Capital (WACC)? (14 marks)

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