This assignment is an individual assignment.
Due date for Assignment 3 is 2nd December 2023.
The Assignment must be submitted only in WORD format via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment Purposes/Learning Outcomes:
No.
Course Learning Outcomes (CLOs)
CLO5
Evaluate cost of capital for decisions related to financing the operations of a corporation.
CLO6
Measure financial corporate performance.
Assignment questions: Total grade – 10 points
1.The market value of Majestic, Inc.’s debt claims is $500, and its equity claims are also $500. What is Majestic’s weighted average cost of capital if the after-tax cost of debt financing is 10 percent, and the cost of equity is 15 percent. (2 Marks)
2.Critical thinking Question: Justify why the marginal income tax rate for the company does not need to be considered when calculating the after-tax cost of equity (common or preferred). (1.5 Marks)
3.If you were a manager of a company, discuss the variables you would take into account when determining the dividend payments to your employees. (1.5 Marks)
4.Asia-based Ashraf Inc., a high-tech company, raised $92 million in its initial public offering (IPO). Of the $35 offering price per share, the corporation got $29. $400,000 was spent on the firm’s legal fees, SEC registration fees, and other out-of-pocket expenses. The first trading day saw a 17% spike in the company’s stock price. How much did the company have to pay in total to issue the securities? (3 Marks)
5.It is anticipated that Jack Security will continue to generate $300 in cash flow in the near future. Jack’s cost of equity capital is thirty percent, and the company is fully financed by equity. The management wants to borrow $100 at a 10 percent interest rate in order to buy back $100 worth of shares (assuming that the loan will be outstanding for an indefinite period of time). What is the firm’s current value today, using Modigliani and Miller’s Proposition 1; additionally, what is the value of the claims made on the firm’s assets after the stock repurchase? After the share repurchase, what rate of return will investors need to see on common stock? (2 Marks)
*Note: Reference is mandatory (not less than 10)
1 mark will be reduced if references are not provided.