Assignment on Financial Management1

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Authors Note:

FINANCIAL MANAGEMENT
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Table of Contents
Question 1:.................................................................................................................................2
a) Long-term debt, first $550 000:.............................................................................................2
b) Long-term debt, greater than $550 000:................................................................................2
c) Preference shares, all amounts:..............................................................................................2
d) Ordinary share capital, first $1.75 million:............................................................................2
e) Ordinary share capital, greater than $1.75 million:...............................................................2
f) Breaking point:.......................................................................................................................3
g) WACC calculation:................................................................................................................3
h) Providing Graph.....................................................................................................................4
Question 2:.................................................................................................................................4
a) Calculating times interest earned ratio and providing explanations:....................................4
b) Market value of Tampa’s Equity under zero growth model:.................................................5
c) Recommending the best possible capital structure:...............................................................5
Question 3:.................................................................................................................................6
Bibliography:..............................................................................................................................9

FINANCIAL MANAGEMENT
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Question 1:
a) Long-term debt, first $550 000:
Particulars Value
Par 1000
Market value 960
Years 14
Coupon rate 9%
Coupon amount 90
Kd 9.48%
Long-term debt, first $550 000 5.69%
b) Long-term debt, greater than $550 000:
Particulars Value
Kd 14%
Tax 40%
Long-term debt, greater than $550 000 8.10%
c) Preference shares, all amounts:
Particulars Value
Dp 80
Np 75
Annual dividend % 14%
Dividend 11.2
Preferred stock, all amounts
14.93
%
d) Ordinary share capital, first $1.75 million:
Particulars Value
Expected dividends 0.96
Current share 14
Growth 12%
Ke (Ordinary share capital, first $1.75 million) 18.86%
e) Ordinary share capital, greater than $1.75 million:
Particulars Value
Expected dividends 0.96
Netting price 10

FINANCIAL MANAGEMENT
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Growth 12%
Ke (Ordinary share capital, greater than $1.75
million) 21.60%
f) Breaking point:
Particulars Value
long term debt 550,000
Weight 35%
Breaking point 1,571,428.57
Particulars Value
long term debt 1,750,000
Weight 50%
Breaking point 3,500,000
g) WACC calculation:
Particulars
Targeted Capital
Structure
Cost of capital
source
Weighted
cost
From:$0 to $1,571,429
Long-term debt 30.00% 5.69% 1.71%
Preferred stock 10.00% 14.93% 1.49%
Common stock equity 60.00% 18.86% 11.31%
WACC 14.51%
From:$1,571,429 to
$3,500,000
Long-term debt 30.00% 8.10% 2.43%
Preferred stock 10.00% 14.93% 1.49%
Common stock equity 60.00% 18.86% 11.31%
WACC 15.24%
Above $3,500,000
Long-term debt 30.00% 8.10% 2.43%
Preferred stock 10.00% 14.93% 1.49%
Common stock equity 60.00% 21.60% 12.96%
WACC 16.88%