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11.If financial markets are considered to be efficient, what is the implication for companies evaluating investment decisions?12.A quoted company is considering raising equity to fund investment opportunities.(a) Explain how the trailing P/E or a forward P/E established by using the consensus opinion of analysts, or a forward P/E established by management, could influence this decision. (b) Which measure should have the greatest influence and why?13.A firm has 200 000 shares outstanding valued at R20 each. Its cost of equity is 15%. The firm has a low risk investment opportunity requiring R1 million in debt to its capital structure. Thecompany has very little debt and the impact on the cost of equity is considered to be very minor. The coupon rate would be 8.5% and the bonds will sell for a par value. The tax rate is 28%.a) Approximately how much will the market capitalisation be after the firm raises the loan?
16b) If it were to continue adding interest bearing debt, will financial distress costs increase linearly?14.You have been approached by a small well established private company to advice on whether they should take on debt to fund new growth opportunities.Explain how you will go about establishing the debt capacity of the company and an appropriate level of interest bearing debt. What data/information do you need and where will you obtain the data/information from in order to perform the task?15.Your group prepared an assignment on CAPITAL STRUCTURE. Give a critical assessment of thepresentation and in particular how the presentation could have been improved or what should have been done differently.The company (ies) relevant to the assignment was…..
1716.You have decided that you wish to invest in a particular sector on the JSE. Share C has caught your eye as it has a low P/E ratio and as such looks cheap.SharePriceEPSP/EShare C55.009.006.1Why should you look at Forward P/E’s and PEG before drawing a conclusion?