Workshop 3 Evaluation of the cost of capital
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Task 1.
The company "Technoline" now seeks to provide high speed internet access a broad audience of the population of Russian cities. As the calculations of experts, within 3 years the investment will bring a steady income. Now in circulation is 800 thousand. Ordinary shares of the company. The carrying value of the share capital of the company is 72 million USD At the moment ordinary shares sold at a price 2.5 times higher than the book value of the shares. It is also known that the coefficient β shares the company in question is 1.1. Risk-free rate is 6.1% and the average market dohod¬nost - 17.1%. Bond companies have required return of 11%. The debt load of 0.4 ry¬nochnyh prices (the ratio of debt to total assets). The company is afraid of buying its shares in connection with the development prospects imeyuschi¬misya. Therefore, it plans to issue bonds for 30 million USD and the funds to buy back the shares on the market. In the future they will be transferred rabot¬nikam company. However, this will increase the coefficient β to 1.2, and the required rate of return on bonds will increase to 12%. The income tax rate of 20%. It is necessary to determine the weighted average cost of capital of the company before and after the share repurchase.
Task 2.
The company "Nanotechnology" is developing a new generation of transistors for use in electronics. So far, the company has financed its activities only from its own sources and its share capital was estimated at 300 million in. e. In the current year the company decided to buy back some of its shares to stabilize their exchange rate and possible further povy¬sit it. The company issued bonds for this USD 120 million It is also known that the risk-free rate of interest otse Niva 7.1%, the average market yield of 17.6%. When the company was financially independent, it koeffitsi¬ent β was estimated at 1.2. The emergence finansi¬rovaniya debt in the capital structure will improve the market value of equity of the company to 210 million USD, the market valuation of debt captan remained unchanged at 120 million USD The company pays income tax at a rate of 20%. Calculate for "Nanotechnology" factor β, the required equity returns, average cost of capital after she became dependent fi¬nansovo if the company's bonds with a rating of A have analogich¬nym yield of 11.6%.
The company "Technoline" now seeks to provide high speed internet access a broad audience of the population of Russian cities. As the calculations of experts, within 3 years the investment will bring a steady income. Now in circulation is 800 thousand. Ordinary shares of the company. The carrying value of the share capital of the company is 72 million USD At the moment ordinary shares sold at a price 2.5 times higher than the book value of the shares. It is also known that the coefficient β shares the company in question is 1.1. Risk-free rate is 6.1% and the average market dohod¬nost - 17.1%. Bond companies have required return of 11%. The debt load of 0.4 ry¬nochnyh prices (the ratio of debt to total assets). The company is afraid of buying its shares in connection with the development prospects imeyuschi¬misya. Therefore, it plans to issue bonds for 30 million USD and the funds to buy back the shares on the market. In the future they will be transferred rabot¬nikam company. However, this will increase the coefficient β to 1.2, and the required rate of return on bonds will increase to 12%. The income tax rate of 20%. It is necessary to determine the weighted average cost of capital of the company before and after the share repurchase.
Task 2.
The company "Nanotechnology" is developing a new generation of transistors for use in electronics. So far, the company has financed its activities only from its own sources and its share capital was estimated at 300 million in. e. In the current year the company decided to buy back some of its shares to stabilize their exchange rate and possible further povy¬sit it. The company issued bonds for this USD 120 million It is also known that the risk-free rate of interest otse Niva 7.1%, the average market yield of 17.6%. When the company was financially independent, it koeffitsi¬ent β was estimated at 1.2. The emergence finansi¬rovaniya debt in the capital structure will improve the market value of equity of the company to 210 million USD, the market valuation of debt captan remained unchanged at 120 million USD The company pays income tax at a rate of 20%. Calculate for "Nanotechnology" factor β, the required equity returns, average cost of capital after she became dependent fi¬nansovo if the company's bonds with a rating of A have analogich¬nym yield of 11.6%.
Task 3.
To cover their investment needs the company plans next year to draw the following types of capital:
1. Retained earnings in the amount of 50 million. Rubles.
2. Issue of ordinary shares in the amount of 200 million. Rubles. The costs of emissions expected to amount to 4% of the actual amount of the proceeds. Dividends for the first year will amount to 80 rubles per 1 share. Then they will grow by 1%. A study of the financial market has shown that in order to attract equity capital in the amount of 100 million. Rubles 1 share price should be set at the level of 400 rubles. To meet the additional capital requirements would have to sell the shares at a price of 320 rubles.
3. Issue of preference shares in the amount of 50 million. Rubles. The costs of emissions expected to amount to 4% of the actual amount of the proceeds, dividends - 100 rubles. The first issue in the amount of 20 million. Rubles can be placed at a price of 600 rubles per share. In order to attract the remaining 30 mln. Rubles, the price of 1 share should be reduced to 550 rubles.
4. Issue of five-year coupon bonds in the amount of 200 million. Rubles. Denomination 1 bonds 10 thousand. Rubles, the rate of 100, the cost of the placement amounted to 3% of actual revenue. For the first issue bonds (70 million. Rubles) set annual coupon of 17% (1 payment per year). On the second issue coupon rate of 20%. The company pays income tax at a rate of 20%.
Calculate the cost of each source of financing, identify the point of fracture and limits WACC, plot the behavior of the marginal cost of capital.
To cover their investment needs the company plans next year to draw the following types of capital:
1. Retained earnings in the amount of 50 million. Rubles.
2. Issue of ordinary shares in the amount of 200 million. Rubles. The costs of emissions expected to amount to 4% of the actual amount of the proceeds. Dividends for the first year will amount to 80 rubles per 1 share. Then they will grow by 1%. A study of the financial market has shown that in order to attract equity capital in the amount of 100 million. Rubles 1 share price should be set at the level of 400 rubles. To meet the additional capital requirements would have to sell the shares at a price of 320 rubles.
3. Issue of preference shares in the amount of 50 million. Rubles. The costs of emissions expected to amount to 4% of the actual amount of the proceeds, dividends - 100 rubles. The first issue in the amount of 20 million. Rubles can be placed at a price of 600 rubles per share. In order to attract the remaining 30 mln. Rubles, the price of 1 share should be reduced to 550 rubles.
4. Issue of five-year coupon bonds in the amount of 200 million. Rubles. Denomination 1 bonds 10 thousand. Rubles, the rate of 100, the cost of the placement amounted to 3% of actual revenue. For the first issue bonds (70 million. Rubles) set annual coupon of 17% (1 payment per year). On the second issue coupon rate of 20%. The company pays income tax at a rate of 20%.
Calculate the cost of each source of financing, identify the point of fracture and limits WACC, plot the behavior of the marginal cost of capital.
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