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FINANCIAL CALCULATIONS Essay Example
 Category:Finance & Accounting
 Document type:Math Problem
 Level:High School
 Page:1
 Words:623
Question 1

Quantify Bent Ltd’s debt ratio before and after the capital restructuring.
Debt ratio 
Debt ratio 

Equity ((0.35/0/65*650,000) 
1,000,000 

Total capital 
1,555,000 
Total capital 
1,450,000 
Quantify Bent Ltd’s WACC before and after the capital restructuring
(855000/155500+700000/1555000(0.7)=0.37 

WACC={10000000/1450000(10%)+(450,000/1450000(0.7)=0.29 
Best discounting rate.
The company should use WACC after since, it depict a low cost of capital with a higher value which minimise investment risk to the company.
Question 2
We use debt to equity ratio to determine the market value of the existing capital structure
Capital structure 
Debt to equity ratio 

B. existing Weighted Average Cost of capital
0.053799 

D/V(0.7) 
0.323404 
0.377204 
breaking points in the Marginal Cost of Capital (MCC) scheduleC.
Marginal Cost Of Capital Worksheet 

Target Capital Structure: 
Percentages 

Longterm Debt 

Preferred Stock 

Common Equity 

Summary of Financing Information: 

Common Stock Current Market Price 

PerShare Common Stock Proceeds 

Current Common Stock Dividend (Do) 

Constant Growth Rate (g) 

Retained Earnings 

PerShare Preferred Stock Proceeds 

Preferred Stock Dividend 

Marginal Tax Rate 

Before Tax 

Principal 
Interest Rate 
Aftertax Cost 

Preferred Stock: Amount 
Dividend ($) 
Aftertax Cost 
Internal Equity: Amount 

External Equity: 

Dividend ($) 
Aftertax Cost 

Marginal cost of capital schedule
Amount of 
Financing 
Remaining 

Lowest Cost 
Available 
Amount of 

Financing 
Supports an 
Increment 
Lowest Cost 
Aftertax 
Marginal Cost 

Available 
Increment of 
Break Point 
Financing 
of Capital 

Preferred 

Preferred 

Preferred 

Preferred 

Preferred 


Kr 0.0091 

New Financing and Project to be accepted
Range of financing 
Source of capital 
cost of capital 
Weighted cost 

01500000 
Preference Shares 

Ordinary Shares 

Debentures 

Retained earning 
0.007917 

Weighted average cost 

10000001400000 
Preference Shares 

Ordinary Shares 

Debentures 

Retained earning 

Weighted average cost 

10000001300000 
Preference Shares 

Ordinary Shares 

Debentures 

Retained earning 

Weighted average cost 
The closest whole percentage point the missing internal rates of return
Project Identification 
Project cost 
Estimated Annual Cash (Millions) 
Estimated life in years 
Internal rate of return 
Projects should be accepted


New Financing 
The company must make a consideration of venturing in project H due to the fact that the internal rate of return on the project depict a low cost of equity capital which implies that the business shall realize utmost returns in the venture alternative.
Would happen if Projects A, C and F were unavailable
Project Identification 
Project cost 
Estimated Annual Cash (Millions) 
Estimated life in years 
Internal rate of return 
The project alternative to be considered is therefore project G which will have the least cost of capital of 10%


New Financing 
Assumption
Them assumption made in the above investment alternative is that an investor is risk averse and the investment will year the positive returns within the stipulated time frame, which implies that no external factors shall affect the performance of the investment. An investor is rational and thus there is no information asymmetric
(CAPM) equation to determine Zebra Ltd’s cost of equity
CAPM = (Risk free rate of return+ Beta (premium)
CAPM= {7.5+1.2(12.37.5) =5.76%
Question three
The 10% cost of capital is in appropriate since, the discounting table provides that an investment analysis shall employ the present value interest factor (P.V.IF 10%) in determining the present value of the cash flow. The procedure Employed by B in appraising the investment viability is faced with the following discrepancy; net present value hasn’t followed the normal procedure of working the net present value since, the NPV of the project shall be the summation of present value then adding the scrap value and then less the initial capital. The cash flow is determined first then discounts the cash flow in order to get the present value; the depreciation tax shield is included in the net cash flow. All of the above mentioned factors in appraising an investment viability using the net present value approach are not followed by B and consequently, the investment decision concluded shall be misleading.