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5.1.3 Lecture_09_Solution_2009

5.1.3 Lecture_09_Solution_2009 - Problem 1 Yolanda...

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1 Problem 1 Yolanda Skateboards forecasts the following information for next year: NPAT = $4 m Dividend payout ratio d = 40% Weighting of equity w S = 25% D 1 = $1 P 0 =$20 g =5% r RF = 6% Beta = 1 r M =10% Flotation costs are super expensive at 10% of the share price Required: (a) What is the BP EQUITY with when d = 40% ? (b) What are the costs of equity r S and new equity r E if d = 40%? (c) What is the new BP EQUITY if d = 60% ? (d) What are the costs of equity r S and new equity r E if d = 60%
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2 Solution 1 (a) and (b) ( 29 ( 29 ( 29 ( 29 1 0 1 $4 1 0.4 0.25 $9.6 0.06 1 0.1 0.06 0.06 0.04 0.1 10% ... 1 0.05 20 0.05 0.05 0.1 10% s s S RF M RF S NPAT d RE BP w w m m r r r r or OR D r g P or β × - = = × - = = = + - = + - = + = = + = + = + = ( 29 ( 29 1 0 1 0.05 1 % 20 1 0.1) 1 0.05 18 0.0555 0.05 0.1055 10.56% E D r g P F or rounded = + = + - - = + = + = g g
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3 Solution 1 page 2 Part (c) with initial working for Part (d) ( 29 ( 29 1 1 1 1 $4 1 0.6 0.25 $6.4 , ( ) $4 0.4 $1,600,000 $1 1.6 $4 s s NEW OLD OLD NPAT d RE BP w w m m D D so must be calculated First find the value of N number of shares Total Old Dividend NPAT d m Given D N m shares Total New Dividend NPAT d m × - = = × - = = = × = × = = = = × = × 1 0.6 $2.4 2,400,000 1,600,000 $1.5
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