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solution week 5

solution week 5 - Balance Sheet Table 1 The Oceanic...

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Balance Sheet- Table 1 The Oceanic Corporation Cash 5,000 Accounts Payable 8000 Accounts Receivable 10,000 Accurals 5,000 Inventory 20,000 Notes Payable 10,000 Total Current Assets 35,000 Total Current asse 23,000 Land & Buildings (net) 43,000 Long Term Debts 40000 Plant and Equipment (net) 45,000 Common Stocks Total Fixed Assets 88,000 (5 Million Outstandi 50000 Retained Earnings 10000 Total Assets 123000 Total Liabilities an 123000 Sales, Earnings, and Dividend History Table 2 Year Sales EPS DPS Change Growth 1995 24,000,000 0.48 0.19 1996 28,000,000 0.58 0.23 0.04 21.05% 1997 36,000,000 0.72 0.29 0.06 26.09% 1998 45,000,000 0.9 0.36 0.07 24.14% 1999 51,750,000 1.04 0.41 0.05 13.89% 2000 62,100,000 1.24 0.5 0.09 21.95% 2001 74,520,000 1.49 0.6 0.1 20.00% AVERAGE 21% GRWOTH RATE IS ASSUMED AS 21% 6. Calculate the firm’s average cost of retained earnings. I DIVIDEND VALUATION MODEL Ks= (DIV1/Po)+g Div1= Expected dividend per share next year. P0= Market price G= growth Growth =21%(As calculated above) DIV1= CURRENT DIVIDEND*(1+Growth rate) 0.726 P0= 35 (given in the case) Ks= 23.07% Cost of equity will also include flotation cost Ke= DIV1/(Po(1-f))+g 23.30% f= flotation cost i.e 10% CALCULATION OF HURDLE RATE

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solution week 5 - Balance Sheet Table 1 The Oceanic...

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