question archive 1) Company A's capital structure contains 30% debt and 70% equity, whereas Company B's capital structure contains 40% debt and 60% equity
1) Company A's capital structure contains 30% debt and 70% equity, whereas Company B's capital structure contains 40% debt and 60% equity
Subject:AccountingPrice: Bought3
1) Company A's capital structure contains 30% debt and 70% equity, whereas Company B's capital structure contains 40% debt and 60% equity. Both companies pay 10% interest rate on their debt.
The shares of company A have a beta 1.3 and the shares of company B have a beta 1.2, the risk-free rate on the economy is 3% and the expected return on the market is 9%.
Using the above information, calculate the following:
a. Cost of equity for Company A and Company B.
b. WACC for company A.
c. WACC for company B.
Tax rate of 30%
2. Jim Ltd.'s next dividend will be $4, the dividend is expected to grow at 8% p.a., for the following 4 years. After that the growth rate in dividends will be 4% per year indefinitely. Required rate of return is 10% p.a.
Required:
Calculate the current value of Jim Ltd.'s shares.
