Fundamental of Finance : Assignment
Added on 2020-05-08
8 Pages960 Words125 Views
Running head: FUNDAMENTAL OF FINANCEFundamental of financeName of the studentName of the universityAuthor note
1FUNDAMENTAL OF FINANCETable of ContentsPart 1..........................................................................................................................................2Part 2..........................................................................................................................................5(a)Net present value.........................................................................................................5(b)Internal rate of return...................................................................................................5(c)Payback period............................................................................................................6(d)Selected method for evaluating the project.................................................................6(e)Project to be accepted or not.......................................................................................6Bibliography...............................................................................................................................7
2FUNDAMENTAL OF FINANCEPart 1Cost of debtFace value of debt = $1600,000Maturity = 8 yearsCoupon rate = 6% p.a paid semi annuallyThe debt rating of the company is A, hence according to the credit rating table the yield onbond for 8 years is 1.15%.Cost of debt = 1.15%Cost of Preference shareAnnual dividend = $1.48Price of share = $10.44Cost of preferred capital = annual dividend / price of share= 1.48 / 10.44= 14.18%Cost of EquityRisk free rate is considered as the 10 year yield on A rated bond which is 1.47%.Beta = 1.6Market risk premium = 9.6%Cost of equity = Rf + (Beta * market risk premium)= 1.47% + (1.6*10%)= 17.47%For weights of each capital, the market value is determined as follows:
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