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Test 5 (WACC)

The document is a question paper containing two questions regarding calculating the weighted average cost of capital (WACC) for two companies, Huwui Limited and ARY. Question 1 provides capital structure and financial information for Huwui Limited, including share capital, retained earnings, long-term debt amounts and interest rates, bank overdraft amount and interest rate, and profit and dividend details. Question 2 provides similar capital structure information for ARY, including share capital amount and value, expected annual dividend and distribution amount, long-term debenture amount and interest rate and redemption details, and the tax rate. Students are asked to calculate the WACC for each company using the information provided.

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Mian Tayyab
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94 views2 pages

Test 5 (WACC)

The document is a question paper containing two questions regarding calculating the weighted average cost of capital (WACC) for two companies, Huwui Limited and ARY. Question 1 provides capital structure and financial information for Huwui Limited, including share capital, retained earnings, long-term debt amounts and interest rates, bank overdraft amount and interest rate, and profit and dividend details. Question 2 provides similar capital structure information for ARY, including share capital amount and value, expected annual dividend and distribution amount, long-term debenture amount and interest rate and redemption details, and the tax rate. Students are asked to calculate the WACC for each company using the information provided.

Uploaded by

Mian Tayyab
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Question Paper

Section:
Total marks: 16
Subject: CAF 06 – MFA
Time allowed: 30 minutes
Teacher: Mr. ZIA UL HAQ
Test – 5 Date:

Name: Rise ID:

Question.1
Huwui Limited has the following capital structure at 31 December 2016:

Share Capital 1,428,000


Retained Earnings 2,750,000
10% Long Term Debt - Irred 1,250,000
12% Long Term Debt – redeem 780,000
Bank O/D 50,000 (16% rate)

1. The latest P/L of the company shows the following:

Profit before tax 1,410,714


Profit after tax 987,500
Profit retained 389,247

2. Dividend history
2012 2013 2014 2015 2016
Dividend per share 4.900 5.500 5.995 6.475 7.122

3. Market rate (adjusted for tax) for irredeemable debt is 9.1%


4. Redeemable debt shall be redeemed at 31 December 2019, its market value is 87
5. Cost of equity is 21%

Required:
Calculate WACC for the company (10)

Question.2
ARY has recently appointed a new finance director (Acha Chartered Accountant)
Capital structure of the company is as follows:

2 million Rs. 0.25 ordinary shares valued at Rs. 0.87. The annual dividend of Rs. 180,000 which represent 70% of the
amount available for distribution, has just been paid.
The company expect to achieve a return of 26% on its retained profits

Rs. 1 million 8% Debentures which are redeemable in eight years time at a premium of 5%.
Debenture holders require a return of 11%.
Tax rate observed in the country is 30%

Required:
Calculate WACC for the company (06)

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