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the existing company wacc replicates the companys current gearing level and its existing ke and kd and the ke in turn reflects the shareholders risk
q show the basis of weightingsi both costs of capital ke and kd as well as the wacc have been calculated using current ex-dividend
q estimate the systematic risk of the new investmentthe beta of the comparator company will be utilized to estimate the systematic risk of the new
q estimation of current cost of debtthe debenture will be used to estimation the current cost of debt as it is the only marketable debt the present
q example of dividend valuation modeldividend valuation model d1p g 24106 428 0middot06 0middot119 or 11middot9an incorrect formula for the dividend
q discount rate to the estimated npv of the investmentthere is no necessity to round the solution up to the nearest whole percentage npv approximate
the cost of debt must be based upon the current market cost of debt where different kinds of debt are used estimates of more than one debt cost may
q estimate cost of equity using dividend valuation modelthe cost of equity may be approximate using either the dividend valuation model or the
q estimate cost of equity using market valuesthe cost of equity as well as cost of debt should always be estimated using market valuesif the
the discount rate used must normally reflect the weighted average cost of equity and debt taking into account the systematic risk of the investment a
q decisions about managerial remuneration packagesin recent years there has been an improved emphasis on decisions about managerial remuneration
the managerial performance measure must be quantitative and the manner in which it is to be calculated should be specified the managerial performance
clarity and transparencythe terms of the payment package must be clear and transparent so that directors and shareholders are in no doubt as to when
q show the goals of managersthe goals of managers may conflict with the objectives of shareholders particularly with the objective of maximisation of
the dividend yield as well as capital growth for 2004 must be calculated with reference to the 2003 end-of-year share price the dividend yield is
q determine expected future cash flowsa rights issue will be a smart source of finance to tirwen plc as it will reduce the gearing of the company the
q evaluate value of rights per existing sharerights issue price 4middot00 times 0middot85 3middot40theoretical ex rights price 5 times 4middot00
q show danger of high financial gearinga additional danger of high financial gearing is that a company may move into a loss-making position as a
q define about financial gearingas financial gearing raise the burden of interest payments increases and earnings become more volatile since interest
financial risk is the likelihood of a company experiencing changes in the level of its distributable earnings as a result of the need to make
q show the nature of business operationsthe nature of business operations that influences the proportion of fixed costs to total costs capital
q business risk in companybusiness risk is the likelihood of a company experiencing changes in the level of its profit before interest as a result of
q availability of fresh issue of equitya fresh issue of equity finance maynt be readily available to a listed company or may be available on terms
q flexibility in debt financedebt finance is more elastic than equity in that various amounts can be borrowed at a fixed or floating interest rate
q redemption of debtequity finance is permanent capital that doesnt need to be redeemed while debt finance will need to be redeemed at some future