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Dinla Co has the following capital structure.

Equity and reserves    
Ordinary shares 23,000  
Reserves 247,000  
  –––––  
    270,000
Non-current liabilities    
5% Preference shares 5,000  
6% Loan notes 11,000  
Bank loan 3,000  
  –––––  
    19,000
    –––––
    289,000
    –––––

 

The ordinary shares of Dinla Co are currently trading at $4·26 per share on an ex dividend basis and have a nominal value of $0·25 per share. Ordinary dividends are expected to grow in the future by 4% per year and a dividend of $0·25 per share has just been paid.

The 5% preference shares have an ex dividend market value of $0·56 per share and a nominal value of $1·00 per share. These shares are irredeemable.

The 6% loan notes of Dinla Co are currently trading at $95·45 per loan note on an ex interest basis and will be redeemed at their nominal value of $100 per loan note in five years’ time.

The bank loan has a fixed interest rate of 7% per year.

Dinla Co pays corporation tax at a rate of 25%.

Requirements:

a

Calculate the after-tax weighted average cost of capital of Dinla Co on a market value basis.

Marks: 8
b

Discuss the circumstances under which the current weighted average cost of capital of a company could be used in investment appraisal and indicate briefly how its limitations as a discount rate could be overcome.

Marks: 5
c

Discuss the connection between the relative costs of sources of finance and the creditor hierarchy.

Marks: 3
d

Explain the differences between Islamic finance and other conventional finance.

Marks: 4

Answers submitted

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Rakhi Gupta's picture
Rakhi Gupta
11/05/2020 - 15:48
a
10024
8
Rakhi Gupta's picture
Rakhi Gupta
11/05/2020 - 22:00
b
10026
5
Rakhi Gupta's picture
Rakhi Gupta
11/05/2020 - 22:13
c
10028
3
Rakhi Gupta's picture
Rakhi Gupta
11/05/2020 - 22:23
d
10030
4
Abhro Gourab Das's picture
Abhro Gourab Das
09/04/2020 - 18:14
a
9608
8
Abhro Gourab Das's picture
Abhro Gourab Das
09/03/2020 - 22:00
d
9588
4
Apurba nandy's picture
Apurba nandy
03/03/2020 - 20:34
a
9028
8
Apurba nandy's picture
Apurba nandy
12/01/2019 - 20:52
a
8200
8
Apurba nandy's picture
Apurba nandy
12/01/2019 - 20:52
a
8306
8
Apurba nandy's picture
Apurba nandy
11/27/2019 - 21:05
b
8214
5
Apurba nandy's picture
Apurba nandy
11/27/2019 - 21:10
c
6024
3
Masum Billah's picture
Masum Billah
11/27/2019 - 20:50
a
8206
8
Masum Billah's picture
Masum Billah
11/27/2019 - 21:03
b
8208
5
Tanbirul Kabir Tanbir's picture
Tanbirul Kabir ...
11/27/2019 - 20:50
a
8202
8
Tanbirul Kabir Tanbir's picture
Tanbirul Kabir ...
11/27/2019 - 21:04
b
8210
5
Abhro Gourab Das's picture
Abhro Gourab Das
08/22/2019 - 01:18
a
6984
8
Abhro Gourab Das's picture
Abhro Gourab Das
08/22/2019 - 01:19
b
6986
5