{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

5.1.3 Lecture_09_Solution_2009

# 5.1.3 Lecture_09_Solution_2009 - Problem 1 Yolanda...

This preview shows pages 1–4. Sign up to view the full content.

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%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern