Please include all formulas and workings Question 1Exe plc is a company that specialises in producing sustainable packaging for toys.They are interested in investing in a new production facility to meet increasingdemands. You have been working as a business analyst for the organisation and haveidentified a potential opportunity.The first item on your agenda is to calculate the cost of capital for Exe plc so you canapply it to the project. To help you with this, the finance director has given you thefollowing financial informationBalance SheetFixed Assets3,300,0001,400,000760,000Current AssetsCurrent LiabilitiesFinanced ByOrdinary Share Capital @50c Each10% Debentures2,500,000900,000500,0008% Convertible BondsThe rate of return of a 10-year government bond is 3%, the market return is 8% andthe equity beta is 1.7. The shares of Exe plc are currently trading at €3 per share.The current market value of the debentures is €110 per €100 nominal value. They areredeemable in 6 years' time at a premium of 5%.The convertible bonds are currently trading at €105 per €100 nominal and are due tobe redeemed in five years' time. They are convertible into ordinary shares at a rate of30 shares per €100 nominal value. The share price is currently €3 and is expected togrow at a rate of 1.5% per annum.Taxation is at 12% and is payable one year in arrears.Requireda) Determine the cost of equity for Exe plcb) Determine the cost of debt for Exe plc

Here, To Find: Cost of equity =? Cost of debt =?

Exe plc is a company that specialises in producing sustainable packaging for toys. They are interested in investing in a new production facility to meet increasing demands. You have been working as a business analyst for the organisation and have identified a potential opportunity. The first item on your agenda is to calculate the cost of capital for Exe plc so you can apply it to the project. To help you with this, the finance director has given you the following financial'information Balance Sheet € Fixed Assets 3,300,000 Current Assets 1,400,000 760,000 Current Liabilities Financed By Ordinary Share Capital @50c Each 10% Debentures 2,500,000 900,000 8% Convertible Bonds 500,000 The rate of return of a 10-year government bond is 3%, the market return is 8% and the equity beta is 1.7. The shares of Exe plc are currently trading at €3 per share. The current market value of the debentures is €110 per €100 nominal value. They are redeemable in 6 years' time at a premium of 5%. The convertible bonds are currently trading at €105 per €100 nominal and are due to be redeemed in five years' time. They are convertible into ordinary shares at a rate of 30 shares per €100 nominal value. The share price is currently €3 and is expected to grow at a rate of 1.5% per annum. Taxation is at 12% and is payable one year in arrears. Required a) Determine the cost of equity for Exe plc b) Determine the cost of debt for Exe plc

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 1EB: Margos Memories, a company that specializes in photography and creating family and group photo...