Seacera Tiles Corp is considering the following average risk projects for its next investment period: Project IRR (%)...

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Finance

Seacera Tiles Corp is considering the followingaverage risk projects for its next
investment period:
Project IRR (%) Investment (RM)
A 11.90 2,000,000.00
B 11.25 2,500,000.00
C 12.17 3,000,000.00
D 11.72 1,500,000.00
E 11.03 2,000,000.00

Seacera has 10,000 bonds outstanding that were issued for 30 yearsten years ago at a par
value of RM1,000.00 and a coupon rate of 12%, with interest paidsemi-annually. Similar
bonds are now selling to yield 9%. Tax rate is 40%.
It issued 40,000 shares of 6% preferred stock at an RM100.00 parvalue eight years ago.
Those preferred shares are now selling to yield 10%, and aresubject to an 8% flotation
cost.
There are currently 2,500,000 of common stock outstanding sellingfor RM11.60 a share.
Expected dividend to be paid is RM0.93 per share and dividends areexpected to grow at
the rate of 6%.
Develop Seacera’s market value based capital structure, calculateits WACC. Assume
equity capital comes from retained earnings. Based on the WACCestimates calculated,
which project/s if any, would be selected and what is the totalinvestment/s for the next
planning period?

N.B. Use 2-decimal places for all calculations.

Answer & Explanation Solved by verified expert

4.4 Ratings (745 Votes)

After tax cost of bondYTM1tax rate91454cost of preferred stock preferred dividendet proceeds from theissue65521087market price preferred dividendcost of preferred stock61060net proceeds market price1flotation See Answer

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Seacera Tiles Corp is considering the followingaverage risk projects for its nextinvestment period:Project IRR (%) Investment (RM)A 11.90 2,000,000.00B 11.25 2,500,000.00C 12.17 3,000,000.00D 11.72 1,500,000.00E 11.03 2,000,000.00Seacera has 10,000 bonds outstanding that were issued for 30 yearsten years ago at a parvalue of RM1,000.00 and a coupon rate of 12%, with interest paidsemi-annually. Similarbonds are now selling to yield 9%. Tax rate is 40%.It issued 40,000 shares of 6% preferred stock at an RM100.00 parvalue eight years ago.Those preferred shares are now selling to yield 10%, and aresubject to an 8% flotationcost.There are currently 2,500,000 of common stock outstanding sellingfor RM11.60 a share.Expected dividend to be paid is RM0.93 per share and dividends areexpected to grow atthe rate of 6%.Develop Seacera’s market value based capital structure, calculateits WACC. Assumeequity capital comes from retained earnings. Based on the WACCestimates calculated,which project/s if any, would be selected and what is the totalinvestment/s for the nextplanning period?N.B. Use 2-decimal places for all calculations.