Stargate Nation Sdn Bhd operates a very successful manufacturing plant in Batu Kawan Industrial Area. The company needs to raise funds for its planned expansion into the Northern Part of Malaysia. The firm’s balance sheet at the close of 2021 appeared as follows: Cash Accounts Receivable Inventories Net Plant and Equipment Total Assets RM 2,210,000 4,380,000 11,540,000 32,575,000 RM 50,705,000 Long-term Debt (Bond) Common Equity Total Debt and Equity RM 18,341,000 32,364,000 RM 50,705,000 The company’s management estimates that the market requires 16 percent return on its common stock, the firm’s bonds command a yield to maturity of 8.5 percent, and the firm faces a tax rate of 33 percent. At the end of the previous year Stargate Nation’s common stock was selling for a price 1.6 times its book value, and its bonds were trading near their par value. Explain the current capital structure of Stargate Nation Sdn Bhd. Calculate the cost of capital for Stargate Nation Sdn Bhd. If Stargate Nation Sdn Bhd stock price fall to 0.7 times book value and the cost of equity fell to 13.5 percent, calculate the firm’s weighted average cost of capital (assume the cost of debt and tax rate do not change).
Stargate Nation Sdn Bhd operates a very successful manufacturing plant in Batu Kawan Industrial Area. The company needs to raise funds for its planned expansion into the Northern Part of Malaysia. The firm’s balance sheet at the close of 2021 appeared as follows: Cash Accounts Receivable Inventories Net Plant and Equipment Total Assets RM 2,210,000 4,380,000 11,540,000 32,575,000 RM 50,705,000 Long-term Debt (Bond) Common Equity Total Debt and Equity RM 18,341,000 32,364,000 RM 50,705,000 The company’s management estimates that the market requires 16 percent return on its common stock, the firm’s bonds command a yield to maturity of 8.5 percent, and the firm faces a tax rate of 33 percent. At the end of the previous year Stargate Nation’s common stock was selling for a price 1.6 times its book value, and its bonds were trading near their par value. Explain the current capital structure of Stargate Nation Sdn Bhd. Calculate the cost of capital for Stargate Nation Sdn Bhd. If Stargate Nation Sdn Bhd stock price fall to 0.7 times book value and the cost of equity fell to 13.5 percent, calculate the firm’s weighted average cost of capital (assume the cost of debt and tax rate do not change).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Stargate Nation Sdn Bhd operates a very successful manufacturing plant in Batu Kawan Industrial Area. The company needs to raise funds for its planned expansion into the Northern Part of Malaysia. The firm’s balance sheet at the close of 2021 appeared as follows:
|
Cash Accounts Receivable Inventories Net Plant and Equipment
Total Assets |
RM 2,210,000
4,380,000 11,540,000
32,575,000
RM 50,705,000 |
Long-term Debt (Bond) Common Equity
Total Debt and Equity |
RM 18,341,000
32,364,000
RM 50,705,000
|
The company’s management estimates that the market requires 16 percent return on its common stock, the firm’s bonds command a yield to maturity of 8.5 percent, and the firm faces a tax rate of 33 percent. At the end of the previous year Stargate Nation’s common stock was selling for a price 1.6 times its book
- Explain the current capital structure of Stargate Nation Sdn Bhd.
- Calculate the cost of capital for Stargate Nation Sdn Bhd.
- If Stargate Nation Sdn Bhd stock price fall to 0.7 times book value and the
cost of equity fell to 13.5 percent, calculate the firm’s weighted average cost of capital (assume the cost of debt and tax rate do not change).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education