Big Water Ltd currently has the following capital structure

Big Water Ltd currently has the following capital structure:

Debt: $4,500,000 paying 9.5% coupon bonds outstanding with 12 years to maturity, an annual before-tax yield to maturity of 8% on a new issue. The bonds currently sell for $1,113 per $1,000 face value.

Ordinary Shares: 65,000 shares outstanding currently selling for $75 per share. The company just paid a $6.50 dividend per share and is experiencing a 6% growth rate in dividends, which it expects to continue indefinitely.

(Note – The firm’s marginal tax rate is 30%.)

 

Required:

1. Calculate the current total market value of the company.
2. Calculate the capital structure of the company.
3. Calculate the weighted average cost of capital (WACC) for the firm.

Alice has an investment portfolio that paid

Alice has an investment portfolio that paid the rate of return of 23%, 12%, – 34%, 18% and 10% over the last five (5) years. Required: a. Calculate the arithmetic average return and the geometric average return of this portfolio? b. If the following information is available for Alice’s portfolio in the forecast for next year, calculate the expected return and identify the risk of return by computing the variance and the standard deviation. State of economy Probability of the economic state Rate of Return Boom 0.55 25% Normal 0.30 17% Recession 0.15 -8%   c. If the beta of this portfolio is 1.2, the risk-free rate of return is 7%, how much is the risk premium applied in calculating the…

APM Fund Management is considering the following options

APM Fund Management is considering the following options for their new investment portfolio: Option 1 – A non-callable corporate bond that pays coupon rate of 9% annually. The bond will be mature in 20 years. The year-to-maturity (YTM) of the bond is 7.5% and the face value of the bond is $1 000.   Option 2 – An ordinary share which just paid a dividend of $7.50 with a constant dividend growth rate of 5% each year. The current market price of this share is $112.50. Option 3 – A $100 par value preference share which pays a fixed dividend of 13%. The required rate of return of the preference shares in the same group is 12%.   Required:  How much should…

On 1 July 2019, BASIL Ltd acquired all the issued shares

CASE STUDY – BASIL LIMITED and LINDA LIMITED – CONSOLIDATION AND GOODWILL ANALYSIS On 1 July 2019, BASIL Ltd acquired all the issued shares (ex-div.) of LINDA Ltd for $272 000. At this date the financial statements of Lucky Ltd showed the following balance in its accounts: Share Capital $150 000 General Reserve    40 000 Retained Earnings    80 000 Dividend Payable   20 000 Goodwill   10 000     At 1 July 2019, all identifiable assets and liabilities of Linda Ltd were recorded at amounts equal to the fair value.  The financial statements of Basil Ltd and Linda Ltd at 30 June 2020 contained the following information:   Basil Ltd $ Linda Ltd $ Profit for the period…

Sally has $50 000. She wants to save $120 000 to deposit

Sally has $50 000. She wants to save $120 000 to deposit for her first home loan. She decided to put that $50 000 in an investment fund that pays an interest rate of 11% per annum (per year), compounding annually.   Required: a. How long does she need to wait until she has saved $120 000? b. If Sally wishes to have that $120 000 in five years, how much does she need to put into the investment now with the same interest rate of 11%? c. Assume that Sally was offered an alternative investment, which requires an initial investment of $60,000 for 7 years. Calculate the amount of money Sally would accumulate after 7 years by this investment, if…

You are the CFO of Black Gold Mining Ltd

You are the CFO of Black Gold Mining Ltd, which is offering an investment in two (2) large projects with the cash flows presented in the table below. Your company can only choose one of the projects (I or II), as shown in the table.     Project I Project II Cost $550 000 $640 000     Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5   230 000 210 000 200 600 150 000 120 000   330 000 300 000 250 000 180 000 150 000   Required:   Undertake the project evaluation and identify which project Black Gold Mining should choose, using: The Net Present Value (NPV) method with the discount rate of 12%…

Gunna, M&N, Adam & Smith, AUS, River and Hunter Ltd

Question 1 Gunna Ltd acquired a printing machine on 1 July 2018 for $100,000. It is expected to have a useful life of 5 years, with the benefits being derived on a straight- line basis. The residual is expected to be $nil. On 1 July 2019 the machine is deemed to have a fair value of $75,000 and a revaluation is undertaken in accordance with Gunnamatta Ltd’s policy of measuring property, plant and equipment at fair value. The asset is sold for $89 000 on 1 July 2020. Required: Provide the journal entries necessary to account for transactions and events at the following date. Narrations are required. 30 June 2019 1 July 2019 30 June 2020 1 July 2020   Question…

Roger Ltd, Catering Industry, Everest Sports and Toowoomba

Question 1 The following information was obtained from the financial records of Roger Ltd for the year ended 30 June 2020. Prepare the statement of profit or loss for the year ended 30 June 2020.   Retained earnings 1 July 2019 $90 000 Sales revenue from continuing operations for the year $600 000 Finance costs $20 000 Estimated income tax expense for the year ended 30 June 2020 $112 500 Interim dividends paid (ordinary shares) $100 000 Write off research and development costs $5 000 Share capital (1 million $2 shares) $2 000 000 Expenses from ordinary activities (excluding finance costs) $200 000   Required: Prepare the statement of profit or loss for the year ended 30 June 2020. Prepare statement…

The Toowoomba Produce Suppliers packages and distributes

The Toowoomba Produce Suppliers packages and distributes three grades of animal feed. The material cost per tonne and estimated annual sales for each of the products are:   Product Material cost Estimated sales Super Premium $16 1000 tonnes Premium $12 1500 tonnes Economy $10 2500 tonnes   The indirect cost of operating the machinery used to package all three products is $20 000 per year. In the past, prices have been set by allocating the indirect costs to products on the basis of estimated sales in tonnes. The resulting total costs (material costs plus allocated fixed overhead) are then marked up by 100 per cent.          Required Allocate total indirect cost to each product. Determine the total cost for each…

Everest Sports owned by Dean Jones sells sports

Everest Sports owned by Dean Jones sells sports equipment to schools and sporting clubs in Victoria. The following balances were reported in the Balance Sheet as at 30 June 2020.   Account Name Balance ($) Cash at bank 19 700 Accounts receivable    1 400 Accounts payable        600 Capital – Tim Lane  20 500   Transactions for July 2020 were as follows: July  2  Received $1400 from accounts receivable 3 Paid $500 of accounts payable 4 Paid rent for July $700 5 Sent invoice to customer $5600 7 Purchased office equipment for cash $2000 9 Recorded cash sales $800 10 Recorded credit sales $1500 14 Purchased office supplies for cash $330 23 Recorded cash sales $2000 31 Cash drawing by…

Selected information for two companies competing in the catering industry

Selected information for two companies competing in the catering industry have been presented below.

 

Account	A Ltd	B Ltd
Current assets	$55250	$83950
Non-current assets	$125000	$149500
Current Liabilities	$29300	$11750
Non-current Liabilities	$44850	$72500
Equity	$106100	$149200
Profit	$37500	$26500

 

Required:

 

1. Calculate the following ratios for A Ltd and B Ltd:
   1. Current ratio.
   2. Return on Assets (ROA).
   3. Return on Equity (ROE).
2. From your calculations in part A, explain which entity is in a more favourable position.

The following information was obtained from the financial records of Roger Ltd

The following information was obtained from the financial records of Roger Ltd for the year ended 30 June 2020. Prepare the statement of profit or loss for the year ended 30 June 2020.   Retained earnings 1 July 2019 $90 000 Sales revenue from continuing operations for the year $600 000 Finance costs $20 000 Estimated income tax expense for the year ended 30 June 2020 $112 500 Interim dividends paid (ordinary shares) $100 000 Write off research and development costs $5 000 Share capital (1 million $2 shares) $2 000 000 Expenses from ordinary activities (excluding finance costs) $200 000   Required: Prepare the statement of profit or loss for the year ended 30 June 2020. Prepare statement of changes…