CIMA F3 Workbook Q PDF

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CIMA F3 Workbook
Questions
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Lecture 1
Financial Strategy
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Shareholder Wealth - Illustration 1
Year
Share Price
Dividend Paid
2007
3.30
40c
2008
3.56
42c
2009
3.47
44c
2010
3.75
46c
2011
3.99
48c
There are 2 million shares in issue.

!
!
!
!
!
!
!
!
!
!
Calculate the increase in shareholder wealth for each year:
II. Per share
III. As a percentage
IV. For the business as a whole
F3 CIMA Questions!
EPS - Illustration 2
2010
$000
2011
$000
PBIT
2000
2100
Interest
200
300
Tax
300
400
Profit After Tax
1500
1400
Preference Dividend
300
400
Dividend
800
900
Retained Earnings
400
100
Share Capital (50c)
5000
5000
Reserves
3000
3100
Share Price
$2.50
$2.80
Calculate the EPS for 2010 and 2011.
F3 CIMA Questions!
Lecture 2
Performance
Measurement
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Performance Analysis Illustration

X1
X2
X3
Non Current Assets
500
700
1000
Current Assets
150
200
300
650
900
1300
Ordinary Shares ($1)
300
300
300
Reserves
100
280
430
Loan Notes
150
200
300
Payables
100
120
270
650
900
1300
Revenue
3000
3500
4200
COS
2000
2400
3200
Gross Profit
1000
1100
1000
Admin Costs
300
350
400
Distribution Costs
200
250
300
PBIT
500
500
300
Interest
100
150
220
Tax
120
90
50
Profit After Tax
280
260
30
Dividends
100
110
30
Retained Earnings
180
150
$3.30
$4.00
$2.20
Share Price
Using the information calculate and comment on the following Ratios:

I. Return on Capital Employed
II. Return on Equity
III. Gross Margin
IV. Net Margin
V. Operating Margin
VI. Revenue Growth
VII. Gearing
VIII. Interest Cover
IX. Dividend Cover
X. Dividend Yield
XI. P/E Ratio
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Lecture 3
Finance Sources
F3 CIMA Questions!
Rights Issue - Illustration 1

XYZ Ltd. intends to raise capital via a rights issue.
The current share price is $8.
They are offering a 1 for 4 issue at a price of $6.
Calculate the Theoretical Ex-rights Price.
Rights Issue - Illustration 2

ABC Ltd. has decided to raise capital via a rights issue.
The share price is currently $5.50 and ABC intends to raise $5m.
There are currently 6.25m shares in issue and ABC is offering a 1 for 5 rights issue.
Calculate the Theoretical Ex-Rights Price.
F3 CIMA Questions!
Lecture 5
Investment
Appraisal I
F3 CIMA Questions!
ARR - Illustration 1
ABC Ltd are considering expanding their internet cafe business by buying a business
which will cost $275,000 to buy and a further $175,000 to refurbish.
They expect the following cash to come in:
Year Net Cash Profits ()
1 45,000
2 75,000
3 80,000
4 50,000
5 50,000
6 60,000
The equipment will be depreciated to a zero resale value over the same period and,
after the sixth year, they can sell the business for $200,000
Calculate the ARR or ROCE of this investment
F3 CIMA Questions!
Relevant Cash Flow Criteria - Illustration 2

A business is considering investing in a new project. They have already spent $20,000 on
a feasibility study which suggests that the project will be profitable.
The headquarters of the company has spare floor space which will be allocated to the
project with $7,000 of the current monthly rent allocated to the project.
New equipment costing $2.5m will have to be bought and will be depreciated on a straight
line basis over 10 years.
A manager who earns $30,000 per year and currently runs a similar project will also
manage the new project taking up 25% of his time.
State whether each of the following items are relevant cash flows and explain your answer.
I.
The cost of the feasibility study.
II.
The rent charged to the project.
III. The new equipment.

IV. The depreciation on the new equipment.
V.
The Managers salary.
F3 CIMA Questions!
Payback Period - Illustration 3

Initial Investment of $5.8m.
Annual Cash Flows of $400,000.
Calculate the Payback Period.
Payback Period - Illustration 4

Initial Investment of $6.2m.
Cash Flows of:
Year 1: !
$1,200,000
Year 2:!
$2,200,000
Year 3:!
$2,500,000
Year 4:!
$1,700,000
Calculate the Payback Period.
F3 CIMA Questions!
Discounted Cash-flows - Illustration 5

An investor wants a real return of 10%. Inflation is 5%
What is the MONEY/NOMINAL rate required?

A company undertakes a project with the following cash-flows:
Year
Cash-Flows
5,000
7,000
8,000
10,000
11,000
9,000
The company has a cost of capital of 10%.

Calculate the present value of the cash flows for each of the six years and in total.
F3 CIMA Questions!

A company undertakes a project with the following cash-flows:
Year
Cash-Flows
5,000
5,000
5,000
5,000
5,000
5,000
The company has a cost of capital of 10%.

Calculate the present value of the total cash flows for the six years

A company expects to receive $100,000 per year forever.
Their cost of capital is 10%.
Calculate the present value of the perpetuity.
F3 CIMA Questions!
Lecture 6
Investment
Appraisal II
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WDA - Illustration 1
A business buys a piece of equipment for $100.
Capital allowances are available at 25% reducing balance.
The tax rate is 30%
After the 4 year project the equipment can be sold for $25.
Working Capital - Illustration 2

A business requires the following working capital investment into a four year project:
Initial Investment:! !
30,000
Year 1!!
35,000
Year 2!!
45,000
Year 3!!
32,000
Show the working capital line in the NPV calculation.
F3 CIMA Questions!
NPV - Illustration 3
A business is evaluating a project for which the following information is relevant:
I.
Sales will be $100,000 in the first year and are expected to increase by 5% per year.
II.
Costs will be $50,000 and are expected to increase by 7% per year.
III. Capital investment will be $200,000 and attracts tax allowable depreciation of the full
value of the investment over the 5 year length of the project.
IV. The tax rate is 30% and tax is payable in the following year.
V.
Working Capital invested will be 20% of projected sales for the following year.
VI. General inflation is expected to be 3% over the course of the project and the business
uses a real discount rate of 9%.
Calculate the NPV for the project.
F3 CIMA Questions!
Lecture 7 Investment
Appraisal III
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Illustration 1
ABC has evaluated a project and come to the following conclusions.
At a discount rate of 10% the NPV will be $100,000
At a discount rate of 15% the NPV will be -$75,000
What is the IRR?
F3 CIMA Questions!
Illustration 2
Initial Investment(5,000)
Period Cash Flows
12,000
2(1,000)
33,500
43,800
Cost of Capital 10%
NPV = 1,216
IRR = 19%
Calculate the MIRR.
F3 CIMA Questions!
Lecture 8 - Foreign
NPV
F3 CIMA Questions!
Illustration 1
Item costs $1,000
/$ 1 : 2
However inflation in US is 5% and Eurozone 3%
Calculate the exchange rate in one years time.
Illustration 2 (i)
US Interest rate = 10%
UK Interest rate = 8%
Exchange rate= /$ 1 : 2
Predict the exchange rate in 1 year
Illustration 2 (ii)
Current spot rate $/ 1 : 1
The dollar is expected to strengthen by 7% per anum
Forecast the $: rate for the next 4 years.
F3 CIMA Questions!
Illustration 3
ABC Ltd. is a UK company intending to undertake a project in Foreignland where the
currency is the Franc (FR).
ABC uses a discount rate of 10% to evaluate projects in the UK and the current spot rate
is / FR 2.000.
The risk free rate of interest in Foreignland is 5% with the UK rate being 7%.
The initial investment in the project will be FR 400,000 with net cash inflows over a 5 year
project of FR 150,000 per year.
Ignore Tax.
Calculate the NPV of the project.
Illustration 4
is / FR 2.000.
F3 CIMA Questions!
Illustration 5
is / FR 2.000.
Sterling is expected to appreciate against the Franc by 10% per year.
Illustration 6
is / FR 2.000.
The initial investment in the project will be FR 400,000 with net cash inflows over a 5 year
project of FR 150,000 per year.
Ignore Tax.
Calculate the NPV of the project by adjusting the discount rate.
F3 CIMA Questions!
Lecture 9
WACC I
F3 CIMA Questions!
Cost of Equity using DVM - Illustration 1
ABC Company has just paid a dividend of 35c.

The current share price is $3.25.
Calculate the Cost of Equity (Ke) using DVM.
Cost of Equity using DVM - Illustration 2
ABC Company has just paid a dividend of 35c.

The dividend paid has grown by 4% per year for the past 5 years.
Calculate the Cost of Equity (Ke) using DVM.
Cost of Equity using CAPM - Illustration 3
Company A has a Beta of 1.2.

Government bonds are currently trading at 4%.
The average return than investors in the market can expect is 15%.
Calculate the Cost of Equity using CAPM.
F3 CIMA Questions!
Cost of Equity using CAPM - Illustration 4

Company B has a Beta of 1.
The average return than investors in the market can expect is 12%.
Calculate the Cost of Equity using CAPM for each company.
Cost of Equity using CAPM Illustration 5

Company B has a Beta of 1.2.
The average market risk premium is 6%.
Calculate the Cost of Equity using CAPM for each company.
F3 CIMA Questions!
Lecture 10
WACC II
F3 CIMA Questions!
Irredeemable Debt - Illustration 1
A company has issued 10% irredeemable debt.

The market value of the debt is $90.
The tax rate is 30%
Calculate the cost of debt (Kd).
Redeemable Debt - Illustration 2
A Company has issued debt which is redeemable in 5 years time.

Interest is payable at 8%.
The current market value of the debt is $102.
Ignore taxation.
Calculate the Cost of Debt (Kd).
Redeemable Debt - Illustration 3
A Company has issued debt which is redeemable in 5 years time.

Tax is payable at 30%.
F3 CIMA Questions!
Convertible Debt - Illustration 4
A Company has issued debt which is convertible in 5 years time.

On conversion, investors will have a choice of either:
I.
Cash at a 15% premium; or
II.
18 shares per loan note.
The current share price is $6 and it is expected to grow in value by 4% per year.
Tax is payable at 30%.
Preference Shares - Illustration 5
A company has issued 8% preference shares with a nominal value of $1.

The market value of the shares is 80c.
The tax rate is 30%.
Calculate the cost of the preference shares (Kd).
F3 CIMA Questions!
Bank Debt - Illustration 6
A company has a bank loan of $2m at an interest rate of 10%.

Calculate the cost of debt (Kd).
WACC - Illustration 7
Company A is funded as follows:

Item
Capital Structure
Cost
Equity
85%
15%
Debt
15%
7%
Calculate the Weighted Average Cost of Capital.
F3 CIMA Questions!

Balance Sheet Extract
Ordinary Shares (50c)
3000
Loan Notes
2000
Bank Loan
1000
The cost to the company of each of the above items has been calculated as:
Ordinary Shares
13%
Loan Notes
8%
Bank Loan
5%
The Loan notes are currently trading at $94.

The current share price is $1.50
F3 CIMA Questions!

Balance Sheet Extract
Ordinary Shares (50c)
2000
12% Loan Notes
1500
8% Preference Shares ($1)
500
Bank Loan
750
Details on these are as follows.

The company has an equity beta of 1.2. Government bonds are currently trading at 6%
and the average market risk premium is 7%.
The Loan notes are currently trading at $106 and are redeemable at par in 5 years time.
The preference shares are trading at 92c.
The bank loan has an interest rate of 10%.
F3 CIMA Questions!
Lecture 11
Capital Structure
F3 CIMA Questions!
Capital Structure - Illustration 1
A company has total capital of $1,000 with debt making up $300 and equity making up
$700 of the total. The companys cost of debt is 5% and cost of equity is 14%.
I.
II.
Calculate the companys current WACC.

Calculate the WACC if the company substitutes $200 of equity for $200 of debt
causing their cost of equity to rise to 16%.
III. Calculate the WACC if the company substitutes $300 of equity for $300 of debt
causing their cost of equity to rise to 25%.
F3 CIMA Questions!
Lecture 12
M & M Formulae
F3 CIMA Questions!
Illustration 1
ABC Ltd has a share price of 350c and 1m shares in issue. It currently has no debt.
Current cost of capital is 13%.
The directors have decided to replace $2m of equity with 10% debt. The tax rate is 30%.
Required
(i) Calculate the new value of the geared firm.
(ii)Calculate the value of the Equity in the geared firm.
Illustration 2
ABC Co. and CD Co. operate in the same industry and are identical in their ability to
generate cash flows.
ABC Co. is financed by Equity only of 3m shares with current value of $1 and has a cost of
equity calculated at 15%.
CD Co. has the same total capital but within it has irredeemable debt with a market value
of $0.9m.
Required
(i) Calculate the value of CD Co.
(ii)Calculate the value of the Equity in CD Co.
F3 CIMA Questions!
Illustration 3
of $0.9m and cost of debt of 8%.
Required
(i) Calculate the Cost of Equity for CD Co.
Illustration 4
of $0.9m and cost of debt of 8%.
Required
(i) Calculate the WACC for CD Co.
F3 CIMA Questions!
Lecture 13
Risk Adjusted WACC
F3 CIMA Questions!
Risk Adjusted WACC - Illustration 1

Company A intends to undertake a project in an unrelated industry.
The following details are relevant:
Item
Company A
Proxy Company
Equity Beta (e)
1.2
1.4
Value of Equity
1000
800
Value of Debt
400
500
The risk free rate is 4%.

The average return on the market is 12%.
The post tax cost of debt is 7%.
Calculate the risk adjusted WACC to be used in evaluating the project.
Ignore Tax
F3 CIMA Questions!
Risk Adjusted WACC - Illustration 2

Company A intends to undertake a project in an unrelated industry.
The following details are relevant:
Item
Company A
Proxy Company
Equity Beta (e)
1.1
1.3
Value of Equity
1200
900
Value of Debt
500
450
The risk free rate is 4%.

The average return on the market is 12%.
The post tax cost of debt is 8%.
Calculate the risk adjusted WACC to be used in evaluating the project.
F3 CIMA Questions!
Illustration 3
Company ACompany B
Debt/Equity
1/31/4
Equity Beta
1.2
Debt Beta
0.3
Assume that the Asset Beta and the Debt Beta of each firm is the same.
Calculate the Equity Beta for Company B.
F3 CIMA Questions!
Lecture 14
APV
F3 CIMA Questions!
Illustration 1
Cost of Equity in Geared Firm = 12%
Cost of Debt = 8%
Debt/Equity ratio = 1/2
Tax rate = 30%
Calculate the cost of equity in an ungeared firm.
Illustration 2
Company AB has used $5m of 10% debentures to finance a project lasting for 4 years.
Issue costs are 3% and are tax deductible.
What is the PV of the issue costs for APV purposes?
Illustration 3
Issue costs are 3% and are tax deductible. These are to be raised along with the finance.
What is the PV of the issue costs for APV purposes?
F3 CIMA Questions!
Illustration 4
What is the PV of the tax relief available for APV purposes?
Illustration 5
Company AC needs to raise $10m in debt finance for 4 years.

Company AB has raised $7m of 10% debentures and the rest is provided by a subsidised
government loan of $3m at 5%.
Calculate the financing effects of the debt for APV purposes.
Illustration 6
ABC Co. is considering a project which is expected to generate cash inflows of $500,000
per year for 5 years and cost $500,000 of initial investment.
Costs have been estimated at $350,000 per year.
ABC has a current cost of equity of 14% and a cost of debt of 7% and a current debt to
equity ratio of 1/3.
To undertake the the project the $500,000 will be raised through a bond issue of 8% with
issue costs of 4% to be raised in addition to the finance.
F3 CIMA Questions!
Lecture 15
More Risk
F3 CIMA Questions!
Illustration 1
ABC Ltd is undertaking a project costing $900m with expected net cash flows of $400m in
years 1 & 2 then $600m in year 3.
The FD considers that these cash flows may be overestimated by as much as 10% in year
1, 15% in year 2 and 20% in year 3.
The risk free rate is 5%
Required
Using certainty equivalents calculate the expected NPV of the project.
F3 CIMA Questions!
Lecture 16
Further Appraisal
F3 CIMA Questions!
Expected Values - Illustration 1
A business is considering 2 different projects. The likely profit made from each project is
outlined below:
Project A
Project B
Projected Profit
Percentage
Likely-hood
Projected Profit
Percentage
Likely-hood
$10,000
10%
$10,000
15%
$15,000
30%
$15,000
25%
$20,000
40%
$20,000
30%
$23,000
20%
$23,000
30%
Calculate the expected value for each of the projects.
Sensitivity Margin - Illustration 2
A business is considering a project which will cost them an initial 20,000

The sales expected for the 2 year duration are 20,000pa.
The variable costs are 2,000pa
Cost of capital 10%
Calculate the sensitivity margin of:
I.
The initial investment.
II.
The variable costs of the projects.
III. The sales of the project.
F3 CIMA Questions!
Lease V Buy - Illustration 3
Machine cost $10,000

The Machine has a useful economic life of 5 years with no scrap value
Capital allowancesavailable at 25% reducing balance
Finance choices
1) 5 year loan 14.28% pre tax cost
2) 5 year Finance Lease @ $2,200 pa in advance
If the machine is purchased then maintenance costs of $100 per year will be incurred.
The leasing company will maintain the machine if it is leased.
Should the company lease or buy the machine.
F3 CIMA Questions!
Equivalent Annual Cost - Illustration 4
Machine Cost 30,000

Running costs
Year 1 10,000
Year 2 11,500
Residual Value (if sold after..)
Year 1 19,000
Year 2 16,000
Cost of capital = 10%

Is it better to replace the machine every year or to replace it every 2 years?
F3 CIMA Questions!
Lecture 17
Further Appraisal II
F3 CIMA Questions!
Profitability Index - Illustration 1
A business has identified the following projects. They have $200,000 to invest and the
projects are divisible.
Project
Investment
NPV
90,000
15,000
110,000
25,000
50,000
10,000
75,000
22,000
70,000
-8,000
Which projects should the business undertake?
F3 CIMA Questions!
Investment Choices - Illustration 2
A business has identified the following projects. They have $200,000 to invest and the
projects are non-divisible.
Project
Investment
NPV
90,000
15,000
110,000
25,000
50,000
10,000
75,000
22,000
Which projects should the business undertake?
Equivalent Annual Annuity - Illustration 3
NPVDuration
Project 13005 yrs

Project 22003 yrs
Project 33506 yrs
Calculate the EEA of each project given a cost of capital of 10%
F3 CIMA Questions!
Lecture18
Working Capital
F3 CIMA Questions!
Working Capital Illustration

Balance Sheet
$000
ASSETS
Non Current Assets
1000
Inventory
300
Receivables
200
Cash
300
1800
LIABILITIES
Ordinary Shares
800
Reserves
200
Long term Liabilities
700
Payables
100
Overdraft
1800
Income Statement
$000
Revenue
1000
COS
800
Gross Profit
200
Other Costs
100
Net Profit
100
Other Information:
All sales are made on credit.
Required:
Calculate the Cash Operating Cycle for Inter Ltd.
F3 CIMA Questions!
Working Capital Illustration Part II

Show the journal entries and calculate the Revised Balance sheet if the operating cycle
changes to:
Item
Days
Inventory Period
200
Collection Period
100
Less:
Payables Period
30
270
F3 CIMA Questions!
Working Capital Illustration Part III

Show the journal entries and calculate the Revised Balance sheet if the operating cycle
changes to:
Item
Days
Inventory Period
90
Collection Period
30
Less:
Payables Period
60
60
F3 CIMA Questions!
Lecture 19
Business Valuations
I
F3 CIMA Questions!
Net Assets Valuation Method Illustration 1
Non Current Assets
550,000
Current Assets
170,000
Current Liabilities
-80,000
Share Capital
300,000
Reserves
200,000
10% Loan Notes
150,000
The Market Value of property in the Non Current Assets is $50,000 more than the book
value.
The Loan Notes are redeemable at a 5% premium.
What is the value of a 70% holding using the net assets valuation basis?
F3 CIMA Questions!
DVM - Illustration 2
ABC pays a constant dividend of 45c. It has 3m ordinary shares.

The shareholders require a return of 15%.
What is the Value of the business?
DVM - Illustration 3
A business has Share Capital made up of 50c shares of $3 million

Dividend per share (just paid) 30c
Dividend paid four years ago 22c
Required Return = 12%
Calculate the Value of the business using the dividend valuation method.
F3 CIMA Questions!
P/E Ratio Method - Illustration 4
X1
X2
X3
$000
$000
$000
Revenue
3000
3500
4200
COS
2000
2400
3200
Gross Profit
1000
1100
1000
Admin Costs
300
350
400
Distribution Costs
200
250
300
PBIT
500
500
300
Interest
100
150
220
Tax
120
90
50
Profit After Tax
280
260
30
Dividends
100
110
30
Retained Earnings
180
150
Industry P/E Average
13
12
14
Calculate the Value of the Company for each of the 3 years using the P/E Ratio
method.
F3 CIMA Questions!
P/E Ratio Method - Illustration 5

X1
X2
X3
$000
$000
$000
Revenue
3200
3800
4800
COS
2000
2400
3200
Gross Profit
1200
1400
1600
Admin Costs
300
350
400
Distribution Costs
200
250
300
PBIT
700
800
900
Interest
100
150
220
Tax
120
90
50
Profit After Tax
480
560
630
Dividends
100
110
150
Retained Earnings
380
450
480
Industry P/E Average
17
15
18
Number of Shares
3m
3m
3m
Calculate the Earnings Per Share for each of the 3 years

Calculate the Value of the Company for each of the 3 years using the EPS you
calculate.
F3 CIMA Questions!
Earnings Yield - Illustration 6

X1
X2
X3
$000
$000
$000
Revenue
3100
3700
4600
COS
2000
2400
3200
Gross Profit
1100
1300
1400
Admin Costs
300
350
400
Distribution Costs
200
250
300
PBIT
600
700
700
Interest
100
150
220
Tax
120
90
50
Profit After Tax
380
460
430
Dividends
100
110
150
Retained Earnings
280
350
280
Earnings Yield
0.15
0.18
0.17
Number of Shares
4m
4m
4m
Calculate the Earnings Per Share for each of the 3 years and the share price using the
earnings yield.
F3 CIMA Questions!
Present Value of Future Cash Flows - Illustration 7
ABC Company earned $100,000 in cash inflows this year.

They expect this to increase in each of the next 5 years by 5% and after that to increase
by 2% forever.
The company uses a cost of capital of 10%.
Calculate the value of the company using the present value of future cash flows method.
F3 CIMA Questions!
Lecture19
Business Valuations
I
F3 CIMA Questions!
Illustration 1
Company A has 100m shares at 3 each. Company B has 50m shares of 1 each.
Company A makes an offer of 1 new shares for every 5 held in B and has worked out
that the synergies available are valued at 20m
Calculate the expected value of a share in the combined company.
Illustration 2
Post Tax Profit P/E Ratio Pre Aq. Value

Company A 150m 10 1500m
Company B 10m7 70m
Estimating the post acquisition value of the combined business is done by applying the
P/E ratio of Company A to the combined earnings of the new combination.

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F3 CIMA Questions!

Shareholder Wealth - Illustration 1

There are 2 million shares in issue.

Profit After Tax

Share Capital (50c)

Calculate the EPS for 2010 and 2011.

Performance Analysis Illustration

Non Current Assets

Ordinary Shares ($1)

Profit After Tax

Using the information calculate and comment on the following Ratios:

Rights Issue - Illustration 1

Rights Issue - Illustration 2

Relevant Cash Flow Criteria - Illustration 2

The cost of the feasibility study.

The rent charged to the project.

III. The new equipment.

The Managers salary.

Payback Period - Illustration 3

Payback Period - Illustration 4

Calculate the Payback Period.

Discounted Cash-flows - Illustration 5

Discounted Cash-flows - Illustration 6

The company has a cost of capital of 10%.

Discounted Cash-flows - Illustration 7

The company has a cost of capital of 10%.

Discounted Cash-flows - Illustration 8

Working Capital - Illustration 2

Show the working capital line in the NPV calculation.

Costs will be $50,000 and are expected to increase by 7% per year.

Predict the exchange rate in 1 year

Cost of Equity using DVM - Illustration 1

ABC Company has just paid a dividend of 35c.

Cost of Equity using DVM - Illustration 2

ABC Company has just paid a dividend of 35c.

Cost of Equity using CAPM - Illustration 3

Company A has a Beta of 1.2.

Cost of Equity using CAPM - Illustration 4

Company A has a Beta of 1.2.

Cost of Equity using CAPM Illustration 5

Company A has a Beta of 1.3.

Irredeemable Debt - Illustration 1

A company has issued 10% irredeemable debt.

Redeemable Debt - Illustration 2

A Company has issued debt which is redeemable in 5 years time.

Redeemable Debt - Illustration 3

A Company has issued debt which is redeemable in 5 years time.

Convertible Debt - Illustration 4

A Company has issued debt which is convertible in 5 years time.

Cash at a 15% premium; or

18 shares per loan note.

Preference Shares - Illustration 5

A company has issued 8% preference shares with a nominal value of $1.

Bank Debt - Illustration 6

A company has a bank loan of $2m at an interest rate of 10%.

Company A is funded as follows:

Calculate the Weighted Average Cost of Capital.

Company A is funded as follows:

Ordinary Shares (50c)

The Loan notes are currently trading at $94.

Company A is funded as follows:

Ordinary Shares (50c)