week 7 Homework.docx - Exercise 1 Chapter 26 1 Rawhajpoutalah Intl an Indian tobacco company has two divisions A and B for which the figures are as

week 7 Homework.docx - Exercise 1 Chapter 26 1...

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Exercise 1 Chapter 26 1/ Rawhajpoutalah Intl., an Indian tobacco company, has two divisions, A and B, for which the figures are as follows: A. V A = 50/0.15 = 333.3; V B = 300/0.15 = 2000. B. V A unchanged; V B = 390/0.15 = 2600; for 300 reinvested, creation of value = 300. C. V B unchanged; V A = 65/0.15 = 433.33; for 300 reinvested, destruction of value = 200. D. V A = 57.5/0.15 = 383.33; V B = 345/0.15 = 2300; for 300 reinvested, creation of value = 50. E.Tendency within conglomerates to spread the investment budget. This does not make for optimal returns.
Exercise 1, 2 & 3 Chapter 29 1/ What is the cost of equity of a company whose shares are trading at 30.2 and which pays a dividend of 5 over five years and 6 after five years? 18.00% 2/ What is the cost of debt for a company whose debt at 11% has a nominal value of 1000, is trading at 1037.9 and has a life of five years (redemption at maturity)? 10.00% 3/ Use the answers to questions 1 and 2 and calculate the cost of capital of this company. The company has issued 1000 shares, the corporate tax rate is 34%. 17.62%

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