Financial Management Assignment for BUACC3701 Semester 2, 2018

BUACC3701 FINANCIAL
MANAGEMENT
ASSIGNMENT
SEMESTER 2, 2018

TABLE OF CONTENTS
Question 1..................................................................................................................................3
1..............................................................................................................................................3
2..............................................................................................................................................3
3..............................................................................................................................................3
4..............................................................................................................................................3
5..............................................................................................................................................3
6..............................................................................................................................................3
7..............................................................................................................................................3
8..............................................................................................................................................3
9..............................................................................................................................................3
10............................................................................................................................................3
11............................................................................................................................................3
12............................................................................................................................................3
13............................................................................................................................................3
Question 2..................................................................................................................................4
(i)............................................................................................................................................4
Part A.................................................................................................................................4
Part B..................................................................................................................................4
(ii)...........................................................................................................................................4
Part A.................................................................................................................................4
Part B..................................................................................................................................4
Part C..................................................................................................................................4
Question 3..................................................................................................................................5
Part B......................................................................................................................................5
Part D.....................................................................................................................................5

Part E......................................................................................................................................5
References..................................................................................................................................6

QUESTION 1
1
Highsky's Existing Market Value Capital Structure
Particulars Market Price/Share (In $)
No. of Shares
(In $) Amount (In $)
Preference Shares 19.16 80000 15,32,800.00
Ordinary Shares 15.37 100000 15,37,000.00
Debentures / Bonds 210.29 7500 15,77,175.00
46,46,975.00
2
In accordance to Damodaran (2016), flotation cost can be referred to as an expense which is
incurred during the process of raising additional capital. The amount of flotation cost is
usually relating to the amount and type of capital which is being raised. The treatment
followed by the company to adjust cash flow against flotation cost is appropriate because of
the flotation cost of projects actually affected as a reduction in initial cash flow. Thus, in this
method first NPV of the project is calculated, and then flotation cost is reduced. Due to same
reason, it is preferred by the analyst.
3
Table 1: Computation of after-tax cost of each source of financing
Particulars
Amount
Financed
(In $)
Interest
(In $)
Tax
(In $)
After
Tax Cost
Long-Term Debt
5,00,
000.00 62500
18,750.0
0
43,7
50.00
Preference Share Capital
5,0
0,000.00 45668.05 - 45668.05
Annual Dividend / Market Price
of Preference Share 1.75/$19.16
Ordinary Equity
5,0
0,000.00
A dividend of next year/
Current Price * growth rate
5,0
0,000.00
60,000.
00
60,0
00.00
Notes related to growth rate