Financial Math Answers

The company has a target D/E ratio of 0.45 which it intends to revert to as soon as possible, while its current D/E ratio is 0.50. Currently, the company has a beta of 1.5. The tax rate is 28%, the risk free rate 7% and the market risk premium, 6%. A very similar company recently issued bonds with a YTM of 10%. The company has R15 000 in total assets, R5000 in total liabilities with a book cost of 5% and has R10 000 in equity. The company currently has EBIT of R1000 which it expects to stay the same for the foreseeable future. R5000 will be raised, either by debt or equity. If debt is raised, the company expects to issue bonds at a market related YTM with a coupon rate of 10%. Question 10 What would the return on equity be if the debt option was chosen?

The company has a target D/E ratio of 0.45 which it intends to revert to as soon as possible, while its current D/E ratio is 0.50. Currently, the company has a beta of 1.5. The tax rate is 28%, the risk free rate 7% and the market risk premium, 6%. A very similar company recently issued bonds with a YTM of 10%. The company has R15 000 in total assets, R5000 in total liabilities with a book cost of 5% and has R10 000 in equity. The company currently has EBIT of R1000 which it expects to stay the same for the foreseeable future. R5000 will be raised, either by debt or equity. If debt is raised, the company expects to issue bonds at a market related YTM with a coupon rate of 10%. What would its WACC under the equity option be?

The company has a target D/E ratio of 0.45 which it intends to revert to as soon as possible, while its current D/E ratio is 0.50. Currently, the company has a beta of 1.5. The tax rate is 28%, the risk free rate 7% and the market risk premium, 6%. A very similar company recently issued bonds with a YTM of 10%. The company has R15 000 in total assets, R5000 in total liabilities with a book cost of 5% and has R10 000 in equity. The company currently has EBIT of R1000 which it expects to stay the same for the foreseeable future. R5000 will be raised, either by debt or equity. If debt is raised, the company expects to issue bonds at a market related YTM with a coupon rate of 10%. Question 8 If the company chose to use debt financing, what would it’s WACC be?

A persons lands $10000 to a corporation by purchasing a bond from the corporation. Simple interest is computed quarterly at a rate of 3 percent per quarter, and a check for the interest is mailed each quarter to all bondholders. The bond expires at the end of 5 years, and the final check includes the original principal plus interest earned during the last quarter. Compute the interest earned each quarter and the total interest will be earned over the 5 year life of the bond.

John Carson is planning for his retirement. He is 45 year today and would like to have Sh.3, 000,000 when he attains the age of 60. He intends to deposit a constant amount at 12% each year in a pension fund to achieve his objective. How much should John invest at the end of each year, for the next 15 years to obtain Sh.3, 000,000 at the end of that period?

Lights Ltd. has raised funds by way of a bank loan. The bank loan came with a covenant of the company maintaining a debt ratio of 0.5. The company currently has total assets of R1 000 000 and total liabilities of R500 000. How much more can the company borrow without breaching its covenant?

Company Y has a AAA credit rating from Standard and Poor’s. The company can obtain long-term loans from banks, from which it could borrow at the government bond yield rate plus a premium of 5%. The government bond yield is 10%. AAA rated bonds generally have a spread of 2% (200 points) in relation to government bonds. Which financing option should Company Y choose?

If a company wishes to raise R2 million through a rights issue at a subscription price of R100 each, while its 20 000 outstanding shares trade at R 150 apiece, what would the theoretical value of its shares after issue be?

Wheels Pty(Ltd) is a large private company that specialises in refurbishing old tyres. The management plans to raise equity capital. The company wants to list on the JSE and plans to raise R10 billion. The company has 25 million shares outstanding and can issue 25 million more in an offer for subscription. A bank evaluated the value of the company and estimates that a fair value for one share is R1000. If the company takes under-pricing of 20% into account, how many shares would the company have to issue to raise R10 billion through their listing?