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  3. consider the following information extract of balance sheet for coco...

Question: consider the following information extract of balance sheet for coco...

Question details

Consider the following information:

 

Extract of balance sheet for COCO Ltd. as at 30 March 2020:

 

Equity

$'000

Issued And Paid-Up Capital

25m   30c    ordinary shares

 

 

7,500

15.5m  $1    2.5% preference shares

15,500

 

Reserves and Retained Profits

Retained profits

 

 

 

7,000

Share premium reserve

8,200

General reserve

6,000

 

 

Debt

44,200

Mortgage

3,200

Debentures

4,580

Bank overdraft

10,555

 

18,335

You also have the following additional information available to you as of today:

·                The current market price of the firm's ordinary shares is $2.80.

·                The firm's preference shares are currently selling for $1.20 each.

·                The debentures will mature in 5 years. They have a coupon rate of 7% per annum.

·                If the company currently sought long-term finance it would have to pay interest rates of 9.2% per annum ondebentures. An amount of $3,800,000 is owing on the mortgage and has 5 years remaining and was taken out at 10% current rates are 12%.

·                The firm is currently paying 7% per annum on its bank overdraft loan.

·                Interest on debentures, mortgage and the bank overdraft is paid half-yearly.

·                The corporate tax rate is 30 cents in the dollar.

·                The estimated Beta of the company's ordinary shares is 1.8.

·                The current yield on a 10-year government bond is 4.5% per annum.

·                The expected return on the market portfolio is 11% per annum.

 

Required:

a)     Which items in the balance sheet should not be included in the calculation of WACC?

b)     Calculate the market value of each relevant item.

c)      Calculate before and after tax costs and WACC. Display your results in the table below.

 

Show your full working out. Fill in the table below.

Component

Market Value

Weighting

Before-Tax

After-Tax

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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