Anyone on here any use at economics/finance? Have a question here ive to do for my Finance class in College and I'm having a mare with it so far. Anyway ill throw it up and see if anybodys interested in taking on the challenge!! . . . (c) The Summarised Balance Sheet of the XVZ Company limited is as follows: Ordinary shares £750.000 Reserves £400,000 Loans(9%) £ 300,000 Deferred Tax £ 50,000 £1,500,000 Fixed Assets £1,400,000 Net Current Assets £100,000 £1,500,000 The company believes that the above capital structure is approximately that which it would wish to maintain. A proposal has been placed before the directors which requires an initial investment of £300,000 and which will use the one piece of vacant land which the company has available . The project will generate net cash flows of £120,000 per annum for the first three years of its life and £ 50,000 per annum for the remaining two years. There is no scrap value. £40,000 of internally generated funds (retained earnings ) is available and the remainder of the required capital will have to be raised through the issue of loan stock and/or ordinary shares. The estimated cost of equity is 15% and an issue of ordinary shares of £5 per share will result in net proceeds per share of £4.75. Loan stock can be sold at par to yield 12%. The company has a tax rate of 50%. Calculate: (a) The amounts of debt and equity to be raised (b) The discount rate ( c) The net present value of the project.
Here Rafa mate, I'm not quite sure how this thread got dug up after this time, however seeing as it did ... did you ever the above sorted out and if so, whats the answer - you've successfully wrecked my head now aswell What you studying, Management & Cost Accounting ?
Class is finance mate, im finished now but never got around to getting the answer to this, wrecking my mallet again now! It is a very tough question though