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The company has the following capital structure of 100m and rates of three capital assets:
irredeemable bond value of 20m it a rate of 7%.
sare capital value of 50m with a rate of 18%.
Preference share value of 30m with a rate of 11%.
CWelcome to the Opentuition forums. Given the above information, the following would apply.
20/100= 0.2 for irredeemable bond component.
0.2x 7% =1.4%
50/100=0.5 for share capital. 0.5x 18% =9%
30/100=0.3 for preference share capital 0.3x 11%=3.3%
1.4%+9%+3.3%=13.7%
13.7% is the Weighted average cost of capital in this question.
If a corporate tax rate is mentioned it will impact the above answer as it will reduce the cost of the irredeemable bonds.
can ou elp me wit tat one as well please?
An initial cost of project is 25,000 and it a constant net cash flows of 11,000 for four years. The residual value is 3,000 , and te cost of capital WACC ued to finance the project is 10%.
Determinate the NPV value of te project.Project Cash flow Disc. Factor PV
year 0 -25,000 1,000 -25,000
year 1 11,000 0.909 9,999
year 2 11,000 0.826 9,086
year 3 11,000 0.7519 8,270
year 4 11,000 0.683 7,513
NPV 9,868
that is what i think is , but what about the residual vallue of 3000?That’s also a positive cash flow. I would discount it at year 4 by 0.683 discount factor.
You might see more complicated versions of similar problems when taxation is introduced. Often it is said to be paid a year in arrears but its important to look at details given by the individual question.
That won’t work since it is only being realised at the end of the project and so has to be discounted. So £14000 is relevant cash flow to be discounted in year 4.
just one more please:))
Actual quantit of production was 500 unit , Fixed costs 80,000 and Contribution margin 400. Calculate Margin of safety?
BEP – 200 unit * 400 = 80,000
500 unit -200 = 300 units Margin of SafetyIs that right?
It’s right in terms of units. I think it can also be expressed in percentage terms. In this case it would be 60%.
why 60 %
i think it is sales / contribution margin*100%
in that case 500/400″ 100% = 80%It’s (budgeted sales – break even sales)/budgeted sales x 100= (500-200)/500 × 100 = 300/500 × 100 = 0.6 x100 = 60%
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