Please include all formulas and workings +- Page WidthWindowAllWindowsQuestion 2Orange Ltd is evaluating the purchase of a new machine to produce a new product.You are employed as a business analyst in the company and you have been asked toassess this investment opportunity.The first item on your agenda is to calculate the cost of capital of Orange plc so youcan apply it to the project. To help you with this the finance director has given you thefollowing information in relation to earnings and the capital structure of the company.40% of the earnings are paid out as dividend each yearYear14Earnings€2,750,000 €2,850,000 €2,960,000 €3,080,000 €3,210,000 €3,350,000Balance Sheet extractOrdinary Shares at 0.50 cent each6,000,00012% Debentures2,000,0001,500,00010% Irredeemable BondsThe company has been quoted on the stock exchange for a number of years and thecurrent share price is €2.8 ex dividend. The current market value of the debentures is€113 per €100 nominal value. The debentures are redeemable in 5 years' time. Theirredeemable bonds are currently trading at €105 per €100 nominal.Taxation is at 12% and is payable one year in arrearsRequired :Part aDetermine the cost of equity for Orange PlcPart bDetermine the cost of debt for Orange Plc.Part cDetermine the weighted average cost of capital(WACC) for Orange Plc

WACC stands for Weighted Average Cost of Capital. It is a financial metric used to calculate the…

Orange Ltd is evaluating the purchase of a new machine to produce a new product. You are employed as a business analyst in the company and you have been asked to assess this investment opportunity. The first item on your agenda is to calculate the cost of capital of Orange plc so you can apply it to the project. To help you with this the finance director has given you the following information in relation to earnings and the capital structure of the company. 40% of the earnings are paid out as dividend each year Year Earnings €2,750,000 1 2 12% Debentures 10% Irredeemable Bonds €2,850,000 Balance Sheet extract Ordinary Shares at 0.50 cent each 3 €2,960,000 4 Required: Part a Determine the cost of equity for Orange Plc 5 € €3,080,000 €3,210,000 €3,350,000 6 6,000,000 2,000,000 1,500,000 The company has been quoted on the stock exchange for a number of years and the current share price is €2.8 ex dividend. The current market value of the debentures is €113 per €100 nominal value. The debentures are redeemable in 5 years' time. The irredeemable bonds are currently trading at €105 per €100 nominal. Taxation is at 12% and is payable one year in arrears

Orange Ltd is evaluating the purchase of a new machine to produce a new product. You are employed as a business analyst in the company and you have been asked to assess this investment opportunity. The first item on your agenda is to calculate the cost of capital of Orange plc so you can apply it to the project. To help you with this the finance director has given you the following information in relation to earnings and the capital structure of the company. 40% of the earnings are paid out as dividend each year Year Earnings €2,750,000 1 2 12% Debentures 10% Irredeemable Bonds €2,850,000 Balance Sheet extract Ordinary Shares at 0.50 cent each 3 €2,960,000 4 Required: Part a Determine the cost of equity for Orange Plc 5 € €3,080,000 €3,210,000 €3,350,000 6 6,000,000 2,000,000 1,500,000 The company has been quoted on the stock exchange for a number of years and the current share price is €2.8 ex dividend. The current market value of the debentures is €113 per €100 nominal value. The debentures are redeemable in 5 years' time. The irredeemable bonds are currently trading at €105 per €100 nominal. Taxation is at 12% and is payable one year in arrears

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter13: Other Financing Alternatives

Section: Chapter Questions

Problem 22DQ

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