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  • Various Costs Involved With Each Source of Finance To Xpresso Delight Limited

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    nhatuyen2410
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    The document analyzes the various costs associated with different sources of finance for Xpresso Delight Limited, including: - Cost of debt is 15% interest but receives a 25% tax relief, resulting in an effective interest rate of 11.25% - Cost of issuing ordinary shares is $0.2 per share plus a 13.33% dividend yield, resulting in an overall cost of 17% - Cost of issuing preference shares is $4 per share plus a guaranteed 10% dividend, resulting in an overall cost of 19.5% - The conclusion is that the company should utilize retained earnings and preference shares as its major sources of finance due to their relatively lower costs.

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    2a Sam.

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    The document analyzes the various costs associated with different sources of finance for Xpresso Delight Limited, including: - Cost of debt is 15% interest but receives a 25% tax relief, resulting in an effective interest rate of 11.25% - Cost of issuing ordinary shares is $0.2 per share plus a 13.33% dividend yield, resulting in an overall cost of 17% - Cost of issuing preference shares is $4 per share plus a guaranteed 10% dividend, resulting in an overall cost of 19.5% - The conclusion is that the company should utilize retained earnings and preference shares as its major sources of finance due to their relatively lower costs.

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    7 просмотров2 страницы

    Various Costs Involved With Each Source of Finance To Xpresso Delight Limited

    Загружено:

    nhatuyen2410
    The document analyzes the various costs associated with different sources of finance for Xpresso Delight Limited, including: - Cost of debt is 15% interest but receives a 25% tax relief, resulting in an effective interest rate of 11.25% - Cost of issuing ordinary shares is $0.2 per share plus a 13.33% dividend yield, resulting in an overall cost of 17% - Cost of issuing preference shares is $4 per share plus a guaranteed 10% dividend, resulting in an overall cost of 19.5% - The conclusion is that the company should utilize retained earnings and preference shares as its major sources of finance due to their relatively lower costs.

    Авторское право:

    Attribution Non-Commercial (BY-NC)
    Скачайте в формате DOC, PDF, TXT или читайте онлайн в Scribd
    Отметить как неприемлемый контент
    из 2

    Various costs involved with each source of finance to Xpresso Delight Limited

    Cost of debt : 15% : 1-25% : 11.25%

    Interest rate Tax relief (tax rate: 25%) Interest fund/ $1

    Cost of issuing ordinary shares for 1 share issued at $1.5/share : $ 0.2 per share (at the point of the 2 nd year and

    Dividend

    the next years, dividend is calculated replied on the formula En +1 = En (1 + 15%) ). Proceeds Dividend/ $ 1 Flotation cost (for $1) Cost of issuing ordinary shares/$ 1 : $ 1.5 per share : 13.33% : 17% : 30. 33%

    Cost of issuing preference shares for 1 share issued at $ 4.2/share : $ 4/share : $ 42/share : 9.5% : 10%
    Dividend = 0.5 (assume that net income is $ 1 per share) Netincome

    Dividend Proceeds Dividend/$ 1 Flotation cost

    Cost of issuing preference shares/$ 1 : 19.5% Dividend payout rate =

    Therefore, if the company raises $ 1 per share, $ 0.5 per share is remained at retained earning. Assume that the company needs to raise $ 1 each year for the plan. (if 20 caf $ 1, 40 caf $ 2) While the company has 40 coffee shops with $ 8 million, the company tends to build up 20 coffee shops with $ 4 million. Year 1 Debt $1 Shareholders $ 2 equity Debt equity to 0.5 2 $1 $2 1 3 $1 $2 1.5 4 $1 $2 2 5 $1 $2 2.5

    Conclusion: the company should utilize retained earning and preference shares as a major source of finance.

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