Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a rose ltd currently has no debt. the company's co

a Rose Ltd currently has no debt. The company's cost of equity is 12.5% p.a....

60.1K

Verified Solution

Question

Finance

image
a Rose Ltd currently has no debt. The company's cost of equity is 12.5% p.a. and its Earnings Before Interest and Taxes (EBIT) is expected to be $200,000 p.a. forever. Rose Ltd is planning to raise $500,000 by a debt issue to buy back and cancel an equivalent value of ordinary shares, thereby reducing the share capital. The company tax rate is 30%. Calculate the market value of the company when Rose Ltd has no debt (current structure) and after Rose Ltd Issued debt (expected structure). 5 marks b. Cosmos Ltd has a debt ratio (total debt divided by total value of the company) of 0.42 and an equity beta of 1.6. The risk-free rate is 4% p.a. and the market risk premium is 8% p.a. Cosmos Ltd does not pay tax. Calculate the company's asset beta and return on asset. (Show answer correct to 3 decimal places.) 5 marks

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Statistics
1.2K views

Test the given claim. Identify the null​ hypothesis, alternative​ hypothesis, test​ statistic, P-value, and then state the...

Chemistry
1.2K views

A 0.4592 g sample of pewter, containing tin, lead, copper, and zinc, was dissolved in acid....

Basic Math
1.2K views

1) Using the tdist function, calculate exact p-values for a two tailed test for the following...

Finance
1.2K views

the standard deviation of the portfolio's return is lower than those of the two securities, A...

Physics
1.2K views

An event has six possible outcomes with probabilities 1 2 1 4 1 8 1...

Geometry
1.2K views

rectangle with vertices A 4 8 B 16 8 C 16 20 and D 4...

Basic Math
1.2K views

An engineering firm is hired to determine if certain waterways are safe for fishing. Samples...

Accounting
1.2K views

Sales $721,510,000 Less: Variable expenses 546,517,000 Contribution margin $174,993,000 ...

Accounting
1.2K views

Wade filed his federal income tax return on time but did not remit the balance...

Accounting
1.2K views

Which 2 statements are true about payment links in QuickBooks Online? Payment links...

Accounting
1.2K views

Analysis: Using the finanical data, perform Analytical procedures to gain understanding of the desired company,...

Finance
1.2K views

Brodsky Metals Corporation has 9.2 million shares of common stock outstanding and 360,000 5 percent...