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Following is the latest statement of financial position of NN Co:

Non-current assets      101
Current assets       
 Inventory    11  
Trade receivables    21  
Cash    10  
      42
Total assets      143
       
Equity and liabilities       
 Ordinary share capital    50  
 Preference share capital    25  
 Retained earnings    19  
Total equity      94
Non-current liabilities       
 Long-term borrowings    20  
Current liabilities       
 Trade payables  22    
 Other payables  7    
Total current liabilities    29  
       
Total liabilities      49
      0
Total equity and liabilities      143

 

NN Co has a cost of equity of 12%. The ordinary shares of the company have a nominal value of 50 cents per share and an ex div market value of $8.30 per share.

The long-term borrowings of NN Co consist of 7% bonds that are redeemable in six years’ time at their nominal value of $100 per bond. The current ex interest market price of the bonds is $103.50.

The preference shares of NN Co have a nominal value of 50 cents per share and pay an annual dividend of 8%. The ex div market value of the preference shares is 67 cents per share.

NN Co pay profit tax at an annual rate of 25% per year.

Requirements:

a

(i) Calculate the after-tax cost of debt of NN Co

(ii) Calculate the weighted average after-tax cost of capital of NN Co.

Marks: 10
b

Discuss the factors to be considered in formulating the dividend policy of a stock-exchange listed company.

Marks: 10

Answers submitted

Created by Ref Marking Action
Rakhi Gupta's picture
Rakhi Gupta
11/04/2020 - 11:24
a
10016
10
Rakhi Gupta's picture
Rakhi Gupta
11/04/2020 - 11:35
b
10018
10
Abhro Gourab Das's picture
Abhro Gourab Das
09/03/2020 - 23:10
a
9592
10
Kamrunnahar Takia's picture
Kamrunnahar Takia
06/10/2020 - 21:55
a
9228
10
Nafeez Imtiaz Hossain's picture
Nafeez Imtiaz H...
06/10/2020 - 21:55
a
9224
10
Apurba nandy's picture
Apurba nandy
03/03/2020 - 22:27
a
9032
10
Tanzeer UL Alaam's picture
Tanzeer UL Alaam
12/03/2019 - 20:39
a
8364
10
Apurba nandy's picture
Apurba nandy
12/01/2019 - 20:06
a
8190
10
Apurba nandy's picture
Apurba nandy
11/26/2019 - 18:35
a
6190
10
Apurba nandy's picture
Apurba nandy
11/26/2019 - 20:12
b
6196
10
Masum Billah's picture
Masum Billah
11/24/2019 - 20:40
a
8148
10
Pronob Kumer Shill's picture
Pronob Kumer Shill
11/24/2019 - 20:40
a
8142
10
Pronob Kumer Shill's picture
Pronob Kumer Shill
11/24/2019 - 20:41
b
6206
10
Tanbirul Kabir Tanbir's picture
Tanbirul Kabir ...
11/24/2019 - 20:40
a
8144
10
Tanzeer UL Alaam's picture
Tanzeer UL Alaam
11/24/2019 - 20:40
a
8150
10
Ariful islam's picture
Ariful islam
08/28/2019 - 22:16
a
7106
10
Sohel Miah's picture
Sohel Miah
07/31/2019 - 00:49
a
6698
10