Homework Help is Here – Start Your Trial Now!
Business
Finance
The following is an extract from the balance sheet of Double Dee International PLC as at 31 March 2015. Ordinary shares of K0.50 each K5,200,000 K4,850,000 K4,500,000 K5,000,000 K19,550,000 Reserves 9% Preference of K1.00 14% Debentures Total Long-Term Funds The ordinary shares are quoted at K0.80. Assume that the market estimate of the next ordinary dividend is K0.04, growing thereafter at 12% per annum indefinitely. The preference shares, which are irredeemable, are quoted at K0.72 and the debentures are quoted at par. Corporation tax is 33%. Required: (a) Use the relevant data above to estimate the company's weighted average cost of capital (WACC), i.e. the return required by the providers of the three types of capital, using the respective market values as weighting factors. (b) Explain how the capital asset pricing model (CAPM) would be used as an alternative method of estimating the cost of equity, indicate what information would be required and how it would be estimated.

The following is an extract from the balance sheet of Double Dee International PLC as at 31 March 2015. Ordinary shares of K0.50 each K5,200,000 K4,850,000 K4,500,000 K5,000,000 K19,550,000 Reserves 9% Preference of K1.00 14% Debentures Total Long-Term Funds The ordinary shares are quoted at K0.80. Assume that the market estimate of the next ordinary dividend is K0.04, growing thereafter at 12% per annum indefinitely. The preference shares, which are irredeemable, are quoted at K0.72 and the debentures are quoted at par. Corporation tax is 33%. Required: (a) Use the relevant data above to estimate the company's weighted average cost of capital (WACC), i.e. the return required by the providers of the three types of capital, using the respective market values as weighting factors. (b) Explain how the capital asset pricing model (CAPM) would be used as an alternative method of estimating the cost of equity, indicate what information would be required and how it would be estimated.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 2MAD
See similar textbooks
icon
Related questions
Question
The following is an extract from the balance sheet of Double Dee International PLC as at 31 March 2015. Ordinary shares of K0.50 each K5,200,000 K4,850,000 K4,500,000 K5,000,000 K19,550,000 Reserves 9% Preference of K1.00 14% Debentures Total Long-Term Funds The ordinary shares are quoted at K0.80. Assume that the market estimate of the next ordinary dividend is K0.04, growing thereafter at 12% per annum indefinitely. The preference shares, which are irredeemable, are quoted at KO.72 and the debentures are quoted at par. Corporation tax is 33%. Required: (a) Use the relevant data above to estimate the company's weighted average cost of capital (WACC), i.e. the return required by the providers of the three types of capital, using the respective market values as weighting factors. (b) Explain how the capital asset pricing model (CAPM) would be used as an alternative method of estimating the cost of equity, indicate what information would be required and how it would be estimated.
Transcribed Image Text:The following is an extract from the balance sheet of Double Dee International PLC as at 31 March 2015. Ordinary shares of K0.50 each K5,200,000 K4,850,000 K4,500,000 K5,000,000 K19,550,000 Reserves 9% Preference of K1.00 14% Debentures Total Long-Term Funds The ordinary shares are quoted at K0.80. Assume that the market estimate of the next ordinary dividend is K0.04, growing thereafter at 12% per annum indefinitely. The preference shares, which are irredeemable, are quoted at KO.72 and the debentures are quoted at par. Corporation tax is 33%. Required: (a) Use the relevant data above to estimate the company's weighted average cost of capital (WACC), i.e. the return required by the providers of the three types of capital, using the respective market values as weighting factors. (b) Explain how the capital asset pricing model (CAPM) would be used as an alternative method of estimating the cost of equity, indicate what information would be required and how it would be estimated.
Expert Solution
steps

Step by step

Solved in 2 steps with 1 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS